6 Mistakes to Avoid When Refinancing Mortgage


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6 Mistakes to Avoid When Refinancing Mortgage

  1. 1. ==== ====For more tips on Safe Mortgage Investing go here:www.Mortgage-Acceleration-Map.com==== ====Mistake 1Make sure the loan officer that you are working with is qualified to help you with mortgagerefinance. The same way you ask loan officers for their rates, ask them about what experiencethey have, whether they are licensed or not, and whether they hold any industry certifications. Itstrue that many states have absolutely no licensing, education or experience requirements for loanofficers, and some loan officers are hired off the streets without even a background check. Are youwilling to entrust one of the most important financial decisions of your life, and your personalconfidential information in the hands of someone who does not adhere to any standardswhatsoever? I encourage you to ask the lender about the background of the company and theindividual whom you are working with. Then use good judgment to make a decision about whetheror not to do business with them.Mistake 2If it seems too good to be true than it probably is: I always like to remind people of that. I adviseyou to ask more questions and try to find the catch. If the rate seems really low then look to see ifthere are any extra fees. Check whether there is a prepayment penalty on the loan. If the fees arereduced, check whether they are built in to a higher interest rate. Also, find out what yourmortgage rate lock terms are, and make sure you are able to close the refinance before the lockexpiration date.Mistake 3Understand that the mortgage rates and the closing costs are directly linked to each other: Thisone is simple, but confuses a lot of people. Lower the mortgage rate, higher the fees. Higher themortgage rate, lower the fees. If the ongoing interest rate for a 30 Year Fixed Mortgage is at6.00% than you can probably get 5.75% by paying additional lender fees commonly known as"points" or you can probably take 6.25% and have the lender pay for some or all of your fees. Askyour lender about these options because you need to look at different variations to calculate thebest break-even point for the refinance.Mistake 4Understand what the mortgage rates are based on: The mortgage rates are linked directly toMortgage Backed Securities or Mortgage Bonds that trade in the Bond Market, and are not linkedto the U.S. Treasury 10yr. Note. I repeat, Mortgage rates are not linked to the U.S. Treasury 10yr.Note. While, The Treasury 10yr. Note and Mortgage Bonds both trade in the Bond Market, theyare completely independent from each other, and quite often trend in different directions from each
  2. 2. other. Just because the yield on the Treasury Note drops it does not mean that mortgage rates aregoing to drop as well. I cant stress it enough this is probably the BIGGEST MISCONCEPTION outthere regarding mortgage rates. Ive met people who have been in the industry for years and theystill think rates are linked to the Treasury Note. Do Not work with a lender who is trackingmortgage rates by keeping their eye on the WRONG INDICATOR because they will NOT be ableto properly advise you on a suitable time for Locking or Floating your mortgage rate. This mistakecan cause you to miss out a GREAT opportunity to secure in a LOW mortgage rate for yourrefinance.Mistake 5Understand how economic indicators impact Mortgage Rates: Now that we have established thatmortgage rates are linked directly to Mortgage Bonds, so the pricing of mortgage bonds is whatcauses the mortgage rates to fluctuate. If mortgage bond prices rise then rates come down, and ifbond prices fall then rates go up. One of the major factors that impact mortgage bond pricing is theupcoming economic indicators that are scheduled to release. As you may know, that bonds &stocks usually have an inverse relationship with each other. Normally, good news for the stocks isbad for bonds, and bad news for the stocks is good for bonds. Think about it, a healthy stockmarket is usually a good indication of a sound economy.Investors are more willing to invest money in stocks when companies are beating earnings,unemployment is low, and when economic indicators are pointing to higher levels of growth. Ingood times investors can experience 50%, 70% or even over 100% returns in the stock marketversus the usual 4% - 6% return on mortgage bonds. Why in the heck would you put money in a4% yielding mortgage bond when your stock investment is giving you a 50% return. In thissituation more investors will be allocating their money in the stock market, causing the demand formortgage bonds to decrease. Low demand will cause mortgage bond prices to fall, which in turnwill cause mortgage rates to rise. On the contrary, if the economy slows down, unemploymentrises, and companies do not meet their earnings.All this negative data will cause the stock market to fall, and investors to allocate their money to asafe harbor of bonds. In this case a 4% return on your money from a safe bond investment isbetter than a potential loss that you may suffer from the risky stock investment. So, in badeconomic times investors pull their money out of stocks and park it in bonds for safety. While, ingood times they pull it out of bonds and invest it in stocks for higher returns. Therefore, goodeconomic news will cause stocks to rise and bonds to fall while bad news will usually do theopposite. A professional loan officer would have the schedule of all the upcoming economicindicators on his finger tips, and would be able to advise you on how the data will impact themortgage rates. Work with someone who is qualified to advise you in this matter.Mistake 6Maintain a short breakeven point: Breakeven point the means to calculate the amount of time it willtake to reap the benefits of your refinance. Breakeven point = total closing costs/monthly paymentsavings. For example: If you are currently on a 30 year fixed mortgage in the amount of $200,000@ 7.00% your monthly payment is $1330.60, and if you were to refinance to a 30yr. fixedmortgage at 6.00% your payment will be $1185.85. Lets assume that your refinance closing costis $3000. In this scenario you will be saving $144.75 on a monthly basis, so you divide $3000 by
  3. 3. $144.75 which equals 20.7 months.That means it will take you almost 21 months to break even the cost of the refinance. Lets saythat if you were to take 6.25% the lender will pay for all you closing cost, so in this case yourbreakeven point is the very next day. Remember mortgage rates and closing costs go hand andhand. I recommend going with an option that has the lowest breakeven point because majority ofthe mortgages in the U.S. are kept for less than 5 years. Even if you are planning on living in thehouse for a long time you may not end up keeping the mortgage for that time. Many things canhappen, the mortgage rates can go down, you may get a promotion where current mortgagestrategy might not be the most suitable for your needs, or you many need to pull some cash out ofhouse. In any case you need to make sure you keep your breakeven point as short as possible.Leo Blair has been in the mortgage profession for over 20 years. For more Refi and MortgageTips please visit http://www.refipost.comArticle Source:http://EzineArticles.com/?expert=Leo_Blair==== ====For more tips on Safe Mortgage Investing go here:www.Mortgage-Acceleration-Map.com==== ====