Today I want to talk about refinancing. We’ve got a couple of rules that this revolves around. And for most people, their mortgage is the largest transaction they have.
I want to take a moment and kind of walk through how we’re seeing people save a ton of money by refinancing their mortgage, the different reasons and strategies people use to do that. And then also, the ways one of my companies, RP Funding, can actually help them do that.
How Refinancing Your Home Can Help You
As we kind of look at the different ways people can refinance– the big one, the first one, obviously, is just reducing your interest. one of our rules here on the network is to reduce interest whenever possible. People don’t realize the impact that an interest rate has.
I think for some people, the idea of lowering an interest rate just kind of seems too good to be true. Well, I’m going to pay less money every month and I don’t really have to do anything different? You know, we’ve almost been brainwashed to believe that there is no free ride. That this is too good to be true. But in reality, the reason interest rates are so low is because we’re not getting paid anything on our savings accounts and our CDs. And, it’s a natural movement in the economy.
With interest rates as low as they are, everyone should be taking advantage of these lower interest rates. But for a lot of people, their big banks don’t want them to. The big bank that holds their mortgage doesn’t want them refinancing. Mainly because they don’t want you to pay less. They make more profit when you continue to pay more.
A lot of the big banks are not letting customers know the benefits of refinancing right now. Interest rates are still extremely low. People who bought a house a couple years ago– rates were very low and they shot up. People who bought homes when rates were higher can benefit greatly from refinancing right now. Then, there are still people who have higher interest rates from before.
The other thing we see is- maybe when you bought your home you had a lower credit score. You might have bought your home on an FHA mortgage and you’re paying that dreaded mortgage insurance premium. These are all solutions that can be fixed with a refinance if you have equity and you have the good credit.
For people who have been listening to this show, and they’ve been improving their credit score, they’ve been moving in the right direction, the higher credit score is going to equate for lower rates for them. As their home has gone up in value, which we’ve seen happening all over the states that the network is broadcast in, where we’re seeing home values increase dramatically. This means you can eliminate PMI, most likely, when you refinance that loan. Because if your home value has gone up enough to where now you don’t need the PMI. Or, just because your home’s value has gone up enough you need less PMI. That can have a huge impact on your payment.
What we see people doing is, they’re taking advantage of the low interest rates. They’re taking advantage of the elimination of PMI. They’re accomplishing this by refinancing.
While refinancing was harder a couple years ago, we’ve seen guidelines loosen. My mortgage company, RP Funding, we’ve loosened our guidelines. Most lenders have loosened their guidelines. It’s easier to refinance today than it was three or four years ago. And it really is this perfect storm.
There was a great article recently the Mortgage Bankers Association put out about this perfect storm for refinancing, because home values are up, interest rates are low, and guidelines have expanded. Fannie Mae and Freddie Mac and the mortgage guarantors have reduced their guidelines, allowing us to reduce our guidelines as lenders in the regulatory environment. So it’s this perfect storm to refinance.
But the funny thing is, so many people haven’t taken advantage of it.
We’re going to kind of break down the different ways you can save. Right now my mortgage company, RP Funding, one of my companies in the Robert Palmer family of companies, we’re offering refinances where I pay all the closing costs. So this is a unique opportunity where you can refinance your home loan without any of those pesky closing costs.
When you look at– we talk a lot about the opportunity cost, about weighing the sacrifice, what you have to give to get something in personal finance. And usually with a mortgage refinance, what you have to give is the closing costs, right? That’s the downside. So, I can save a couple thousand a year over here in interest, but it’s going to cost me $5,000 in closing costs. So it may not be worth it.
To help my listeners, to help my financial ninjas, take advantage of the refinance without the downside, I’m eliminating all of those closing costs. I’m going to pay them for you. We’re not going to finance them into your loan. We’re not going to hide them under your pillow for the tooth fairy. We’re not going to bury them in your backyard somewhere and hide them from you. We’re just not going to charge them. And then the ones that we don’t control, I’m going to pay on your behalf.
We make money by servicing your loan. And I’m going to basically advance money to bribe you to do business with me by paying all of your closing costs, because I want every one of my listeners, I want every one of my financial ninjas, to refinance their mortgage and have the lowest possible interest rate because it is the largest bill in most of our lives.
How Homeowners are Taking Advantage of Refinancing
One of our rules is to buy your home on a 30-year mortgage and then refinance to a 15-year mortgage. Why? It’s because the power of shortening that term as such an impact on your ability to save.
What we’re seeing a lot of people do now is, instead of taking the savings monthly with a lower payment, they’re using the savings to shorten their term. They’re paying their home off five years sooner, seven years sooner, 10 years sooner than they would have if they had kept the old mortgage.
Imagine having five years extra without a mortgage payment, just by making a simple phone call and letting us refinance your mortgage. Imagine having seven years without a mortgage payment.
If you’ve got 20 years left on your mortgage and we can put you into a 15-year term with the same monthly payment because the 15-year rates are so much lower, you’re talking about five less years of payments on the backside of this mortgage. If you owe 23 years on that mortgage and we can get you into a 15-year, you’re talking about a less years of a mortgage.
When we look at being a financial ninja, and we look at planning for the future, planning for retirement, and even if you don’t think you’re going to pay the house off, the acceleration of building equity happens all along the way. So, when you go to that shorter term loan, from day one more of the money is going toward principle than would have on the longer term loan.
This means you’re building equity faster. You’re improving your personal balance sheet faster. So even if you sold the home in five years or 10 years, you’re going to get a much bigger check because you’ll have reduced the mortgage so much quicker by going to shorter term.
What I love is how many people are doing this. We see so many people reaching out to us, and they’re refinancing. They’re excited. They’re taking advantage of the no closing costs. They’re taking advantage the fact that I’m removing the only barrier to refinancing a home loan, the closing costs. I’m removing that barrier by paying it myself.
My industry peers have told me I’m crazy. I’ve had people tell me I’m going to go broke. I can’t run a business this way. I don’t care. I know it works. I’m a smart guy. I’ve run the numbers. I can afford to remove that barrier and pay all of your closing costs to earn your business and make it up in volume.
So many people are excited about this. They’re taking advantage of it. They’ve stayed on the fence. They’ve held off on pulling the trigger on refinancing before because of the closing costs, because of that barrier of closing costs. I’ve removed it.
Where we see the most possible savings is not by taking the lower payment, it’s by taking the shorter term. It’s by cutting real years off of the backside of that mortgage and making harder payments toward principal, reducing the balance faster on the front, and building equity faster by accelerating that mortgage.
How Refinancing Your Home Works
The way a mortgage works is, you don’t pay all the interest up front. It’s not like certain types of loans where you pay all the interest up front. Interest accrues monthly, and the shorter your term, the more of that money going toward principal. When you go to a 15-year or a 20-year and you write that check every month, or you make that online payment to us every month, you see real reductions in that mortgage balance. We’re here to help you do this.
I think the whole low interest rates has kind of become a gimmick because people have been saying it so much. It’s a reality. If you have a high rate on your mortgage, you owe it to yourself to take advantage of that low rate. I see so many of my financial ninjas have not done this yet. They have not refinanced their home loan because of that little pesky barrier called closing costs, which can be $3,000, $4,000, $5,000.
Who Should Refinance Their Mortgage?
Anybody with a higher interest rate. And by higher, I would say anything over, maybe, 4, 4 and 1/4, we should look at, because if we can put you on a 15-year or a 10-year, and cut that term– if you’re in the fours or higher, it’s worth taking a look at.
– If you have an FHA loan and you’re paying mortgage insurance.
– If you’re paying any type of mortgage insurance, we should take a look at it.
– If you have a second mortgage, that second mortgage may reset soon. The home equity line of credit, the payment may triple on you because there’s a 10-year draw period on those home equity lines. Those defaulting on their mortgage may want to approach Amerinote Xchange, a second position note buyer.
Home Equity Line
We see this a lot. People get to the tenth year on their home equity line. Those home equity lines of credit will start to what’s called reset, which is after the 10-year draw period that’s interest only, they triple your payment because now it’s time to pay them back. It’s time to pay back the principal. And so people see those HELOC payments triple, and that’s when they want to refinance.
Adjustable Rate Mortgage
Maybe you have an adjustable rate mortgage and you want to go to a fixed. Maybe you need to take some cash out. Maybe you need to do a debt consolidation loan. Maybe you need to just get cash out for whatever. So you can do a cash out mortgage with us. We’ll loan you up to 80% of the home’s value and give you the cash. Take it and do whatever you want with it. Invest in the stock market.
You can use it to pay off credit cards. Use it to buy a new car, use it to put a kid through college. You can do whatever you want with that cash. You can access that home equity with us, right? You can go from an ARM to a fixed. You can shorten your term. You can lower your payments. You can eliminate PMI.
So anyone with an FHA loan, anyone who needs to access that equity, anyone who needs to shorten their term, anyone who wants to look at lowering their interest rate because they’re above, say, a 4 and 1/4 quarter rate. We can look at 15 years and 20 years and 30 years and all these different terms for you. We can run all the different numbers. We can run all the different scenarios. There’s no cost. There’s no obligation.
