A lot of factors go into determining YOUR mortgage refinance rate, which is why the record low rates being advertised today might NOT be what you qualify for. In this video, I break down:
✅How the value of your home affects your mortgage refinance rate
✅How loan type and terms can affect the rate
✅Rate and term refinance vs. cash-out refinance
✅Why your credit score matters
✅Some examples of refinance rates I've seen for my clients recently
✅How to calculate the break-even point
📥Get my Cost Vs. Savings Vs. Breakeven cheat sheet here: Refinance Cost Vs. Savings
Watch On YouTube: https://youtu.be/-QeZwYZ9_Ac
I call that the kiss of death, because every number you got was probably wrong.
You heard me right. Every number you got was probably wrong.
Hey guys, thanks for tuning in. By the end of this video today, you are gonna have a better idea if refinancing is right for you.
There are lots of ads right now, there are lots of commercials that are going on talking about refinancing and the historically low rates.
So don't be confused. Stay tuned because I'm gonna go through some tips to make sure that a refinance is right for you and that you don't forget to ask all the questions you need so that you don't end up putting yourself more backward than forward if that makes sense.
I am Stephanie Weeks, I am a 17 year loan officer, also the author of the bestselling book "Mortgage Peace". Thank you so much for tuning in.
I want to share my knowledge and experience with you to help you have a smooth and on time mortgage transaction. Being a mortgage lender I of course am obsessed with numbers. And these numbers I'm gonna tell you blow my freaking mind. Okay?
So for the last several years in a row, on average, there are around 21 million people per year, not over five years, not over two, but around 21 million people per year that apply for mortgages.
Did you know that on average, only 7 million close? I don't know about you, but I think that sucks. And I don't think it's because 2/3s of people don't qualify. I really don't.
I think the majority of it is lack of communication, lack of accurate information, and because it can be overwhelming and overloading going through Google and searching the websites and trying to figure out the answers to all the questions when every mortgage is so insanely case by case.
And that's why the answer is almost always well, if then, if this, then that.
So my mission after 17 years, like I mentioned, of being a loan officer, my mission is to spread mortgage peace and help get that number from 7 million to why not my lucky number 13, maybe up to 13 million by helping people be educated, be comfortable, understand the process, know what they're getting into and know how to clearly communicate with their loan officer to make sure that you don't only get closed, but that you have a smooth and on-time transaction as well.
And that is not limited to purchases. There's a lot of same hurdles, problems, miscommunications with refinances, which is why I made this video today.
These are the things I'm gonna cover: types of refinances, credit score and why it matters, home value and why it matters term options, cost versus break even, how your future plans affect your current refinance, rates today as a generality, based on different loan types and refinance rates
and how to do the correct calculations that you're kinda looking for and are going to need to know,
also gonna cover some different rate ranges based on good credit versus excellent versus average,
and even give you guys some examples of why you might choose one over another.
So that is the information today. It is a lot. I'm gonna try to dive in right now. So let's go.
Types of refinances. You have a rate and term refinance, which, in the lenders terminology means that you're either lowering your rate or shorting your term or both. You're not doing anything but paying off one mortgage and rolling in the closing costs and prepaid items potentially that is a rate and term.
Compare that to a cash out refinance where maybe you're paying off your mortgage and some other debt and rolling closing costs and rolling in prepaids, or maybe you're paying off two mortgages instead of paying off one.
That is a cash out refinance versus just a rate and term refinance. There are some other examples like streamline refinances for FHA loans or RD loans or VA loans.
And basically those are similar to the rate and term, they're rate and term, they're non cash out refinances.
Your credit score and why it matters.
We work off of risk based pricing.
And so what that means, and it does vary by loan type, but ultimately to take 10 things down to one, your credit score affects your interest rate, whether you have a 740 or whether you have a 720, or whether you have a 680 or whether you have a 660 maybe you have a 640, that along with a number of other factors are all gonna play into the interest rate that you, Y-O-U qualify for.
You're not always gonna qualify for the rate that your neighbor gets or what you see posted online
as where the rates are at the moment, 'cause there's so much that goes into that. So that is why your credit score matters.
Your home value and why that matters.
What goes into mortgage pricing or mortgage interest rates is also something called an LTV, a loan to value.
What is your loan amount in relation to the value of the home? That means that the value of your home affects whether or not you can refinance, how much you could borrow in the refinance and your interest rate as well.
So that is why your home value matters.
Term options. I bet over 80% of people just think 15, 30, 15, 30.
There's actually 10, 15, 20, 25 and 30 year mortgage amortizations or terms. And sometimes there's even more than that.But generally speaking, keep in mind, 10, 15, 20, 25 or 30, don't get stuck on that 15 versus 30.
ou have more options than that.
Here's some examples of why you might choose one refinance over another and how those different rates might look.
I am not quoting interest rates right now, and I am not quoting APR right now. I'm giving you examples of what I've seen other people qualify for based on some of these scenarios.
And they are insanely case by case. Insanely, insanely, insanely case by case.
Here is one of those examples.
Very recently, Fannie and Freddie and even FHA have altered some of their risk based pricing when it comes to a cash out refinance.
What in the world does that mean?
That if we do a cash out refinance, it's gonna cost you more than it has in the past.
Maybe than it did a week ago. Okay? So here are some examples of a customer that was doing considering a cash out versus a rate and term.
This particular customer I'm giving you examples of no points.
And again, it's case by case, by case, by case, by case.I'm not quoting an interest rate.I'm giving you an example. So this particular customer said,
"I'm not sure if I just want to refinance my mortgage, "or maybe I actually want to pull some cash out."
Let's look at that difference."
Well, for that borrower a no cash out refinance was 3% interest.
Well a cash out refinance in their scenario was 3 1/2% interest.
Now, each scenario is different.
So it might not always be that much of a spread, but what they had to do was take into consideration the other debt being paid off, how long they were gonna be living in the home, how quickly they could pay the debt off otherwise if they didn't throw it into the refinance and then decide what would be best for them: the cash out or the no cash out.
And there is no blanket answer to that. It's not like, "Oh my God, that's so dumb. They should have done the no cash out."
You have no idea.
It is case by case, by case.
It could have made all the sense in the entire world for them to take the cash out.
But I just wanted you to see some of that difference in what it can be. Information on potential interest rates based on good credit versus excellent credit.
I'm not quoting interest rates. I am giving you scenarios.
Each scenario is so case by case that you could have everything in the entire situation that matches your neighbors, everything about yourselves identical, but one of you has a 710 credit score, and that's a good credit score.
But the other one has a 750, which is an excellent credit score.
All other factors being absolutely identical you guys or girls would not qualify for the same rate.
You would not qualify for the same rate. Your neighbor might be qualifying at 2.875, and you might only be able to get 3 1/4.
So it's always great to have the best credit possible and always pay your bills on time and keep your credit card balances low and lots of other things to keep really good credit.
But that gives you an idea of how just a difference in the credit score between good versus excellent could actually affect your situation. How to understand refinance rates.
How to understand refinance rates.
If you're calling around saying, "What's your rate, what's your rate, what's your rate, what's your rate?"
I call that the kiss of death, because every number you got was probably wrong.
You heard me, right?
Every number you got was probably wrong, because if you're not saying, at least here's my credit score, I want cash out or I don't, here's the term that I'm looking at, here's the value of my home, I want an escrow account, or I don't want an escrow account.
I'm considering this type of loan, so on and so forth.
And you may not know all these things, but even if you know, some of them, it gets you started with a better conversation with your lender and on the right foot to getting actually an accurate rate quote.
So I want you to understand how the refinance rates work with cash out versus no cash out, how they work with 10, 15, 20, 25 versus 30 year amortizations, those make a difference.
Your credit score makes a difference.
Your loan to value makes a difference.
Your loan amount makes a difference.
I'm probably forgetting something,but those are some of the basics that are important that I want you guys to know.
The next thing I'm gonna cover, and we're getting down to the end is the cost versus break even.
Just before we get to that, I want to tell you, as I promised, how your future plans affect your current refinance.
Here's a real life example from this morning.
Again, I am not quoting interest rates.
I am not providing an APR. I am just giving an example.
The customer this morning was looking for a rate and term refinance with an excellent credit score, wanting to go from their 30 year loan to another 30 year loan.
They plan to live in the home for about three to five years. Their interest rate was dropping over 1%. Yes over 1% interest.
'Cause some people say, "Oh, if it drops this, "then you should do it. "If it doesn't do that, you shouldn't do that."
No, don't listen to generalities when it comes to your money and your mortgage financing.
Detail, detail, detail.
So yes, they were saving at least 1% on their interest rate and they were going from 30 to 30, excellent credit, rate and term refinance.
They were gonna move in three to five years.
Well guess what? When we looked at the cost, the cost of the refinance in comparison to the savings, we divided to figure out the break even.
His break even was six years when he planned to move in 3-5.
So even though he was saving a decent amount of money per month, and even though he was dropping a percentage on his interest rate, it did not make sense for him to refinance when we looked at the cost versus the break even.
So let me grab my calculator.
When you refinance, you have closing costs, you have points, if you buy any points to get the lower rate or get a lower rate, you have prepaid items.
Most of the time, if you're setting up a new escrow, the escrow refund you get from the old mortgage is going to wash a lot of that. And so I'm just looking today at just true closing cost.
So let's say if your closing costs were, and I'll make this up as we go $3,500.
And let's say that your monthly savings was gonna be $125. I'm gonna take 3,500 divided by 125.
That gives me 28 months cost versus break even. So if you're gonna live in this home for 5, 7, 10, 12 years, for the rest of your life, well, that might make sense.
But if you plan to sell in the next two or three years, maybe even four, it's starting to get questionable for that cost versus break even.
So you want to really get down to the nitty gritty to calculate those numbers, get advice from your mortgage loan officer, maybe get advice from your financial planner to see if maybe that is gonna be worth it to you in that particular example.
Hope that helps.
And so my free download for you today is my cheat sheet of how to figure this information out.
Because if the cost outweighs the savings or the break even is too long based on your situation,
then you may be refinancing and putting yourselves steps backwards instead of, instead of steps forward. So check out that download. I hope it is helpful.
Please shoot me a DM or leave me a comment if you have any questions about it.
If you have any feedback on it, I love communicating with you guys.
Are you there?
Knock, knock, knock, knock.
Are you there?
I hate that.
I feel like sometimes I'm just talking to nothing, right?
And I love hearing from you guys.
I love knowing that you're getting the material,
that you're enjoying the material.
So knock, knock if you're there, do me a favor, drop me a yes in the comments if you think that refinancing is right for you after checking out this video.
If you've enjoyed this video today, subscribe to the channel, share it with your friends and family, help me spread mortgage peace.
And I would love to connect with you guys on social media.
Thanks so much guys.
Every year an average of 21 million people apply for mortgages in the US, and only around 7 million close. I'm on a mission is to change that by spreading mortgage education. Sign up for my newsletter to be a part of my Mortgage Peace Movement!