Your Questions, Answered: Mortgage Rates

October 29, 2020

On this week’s episode of Your Questions, Answered Lonny Greenberg and Brian Leitner discuss the considerations for mortgage rates, and answer the following question:

“Mortgage rates are at historic lows; should I consider refinancing?”

Do you have questions you’d like answered? Email them to QA@marinerwealthadvisors.com, and we’ll provide answers.

Transcripts:

Brian Leitner: You have questions. We have answers. Back with another quick clip. The question of the day is: Rates are at historic lows. Should I consider refinancing? That’s the question. So, what are some of your thoughts in terms of considerations here? 

Lonny Greenberg: So, the brick rates are in historically low levels right now. That doesn’t necessarily mean that everyone should go out and refinance their home. This decision is a personal decision, unique life and financial decision, a combination of both. Some are interested in kind of the peace of mind aspects if some may want to pay off their mortgage earlier, for whatever reason. And for some it’s a pure dollars and cents decision.  

So, let’s, let’s take it from the pure dollars and cents, right? So it’s really a breakeven transaction. The biggest thing you need to look at are really adding the number one thing is how much longer do you plan to stay in your home? And then you start digging into what’s your current principal value of the term of the loan that you have remaining and your current interest rate. 

So really, the place that I like to start is what I call the five-one rule. So, if you think you’re going to be in your home for at least five more years, and you think you can get a reduction of at least 1% on a similar type mortgage. I think the apples-to-apples comparison is the most important. So, if you have a 30-year fixed rate mortgage, you need to compare it to another 30-year fixed rate mortgage. It doesn’t necessarily mean that you’re not going to refinance to a 15-year fixed or an adjustable rate or an interest only mortgage. But I think that that’s the way to really look at it from the initial due diligence. Then the closing costs are a big deal, that’s why I call it a break-even transaction. There are bank closing costs, there’s recording costs with your County. And then there’s also additional costs that have recently been added, that you really need to consider. So really understand those closing costs. When you’re looking at all the options.  

Brian: That’s great perspective, and again, to your point of view, it’s truly a personal decision. What are some of the downsides, right? So, if you know that you’re going to be in the house for a long enough period of time, and it makes sense to break even works in your favor, what are some of the things that maybe get overlooked as it relates to refinancing? Things to watch out for and consider. 

Lonny: Right? So that’s great. A lot of times I’ll see, people will get caught up in just trying to reduce their monthly payments in the moment. And look, that’s important, obviously that creates extra free cash flow. It also helps you feel good about your ongoing cashflow. However, it’s really important to make sure that you’re not refinancing for the wrong reasons. 

You don’t want to have a mortgage that goes on longer and longer as you continue to refinance maybe over and over or even once. Also, you don’t want to continue to pay more and more interest. You may end up paying significantly more in interest over the life of the loan. If in fact, you don’t do the full due diligence, figure out exactly what you’re trying to accomplish with the refinance. 

Brian: That’s a great point. So, you’re refinancing to save money generally speaking, but by continuing to recast and recast and recast, you may end up spending even more money than you had originally. And then to some degree, you may never actually own your home, because you keep sort of setting that clock depending upon what that timeframe looks like. And to your point earlier, it is a personal decision. There are some folks that are very comfortable carrying a mortgage today through retirement for the rest of their lives, and other folks want to pay it off. So that really is great advice. Lonny, really do appreciate you being here. Thanks again for answering that question. 

Lonny: Absolutely. Thanks for having me. 

Brian: And if you or anyone else has questions they’d like answers to. Please feel free to email us at QA@marinerwealthadvisors.com. Thanks for watching. 

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