The Straight Dope On Refinance Loans
Rob Lawrence, Chief Mortgage Warrior Of
Battlecall.com
Times are tough, there is no doubt about that. Interest rates are inching up
and much of the hub-bub of the refinance boom is over. It's the difficult loans
that remain, amongst them mostly purchases.
It's time to face facts. The
A-paper good credit refinance loans are over. There is little chance that you'll
be able to convince anyone to refinance, unless they are in extreme dire
financial straights and have a tremendous amount of debt to pay off (and in that
case, they are probably sub-prime borrowers anyway). Because consumers are
interest rate sensitive, even though they are combining total debt into a lower
payment, you will be hard-pressed to get them to trade their 5.25% mortgage rate
for a 7.5% rate. It simply won't happen.
In order to sell these types of
refinance loans (combining and rolling debt into the mortgage), you will have to
hit the customer's hot buttons. Are they concerned about lowering the monthly
out-go? Have they recently had a major financial change in their life? Lost
their job? Unexpected bills? Whatever the reason, the customer's immediate
concern is the monthly cash flow. They aren't thinking long term, and what this
will do to their financial future. All they care about is getting back on their
feet. And this is where YOU can help. But do it if it only makes sense. Don't
sell a loan if you yourself wouldn't do the same thing.
Know that long
term, when you roll debt into a mortgage, you pay much more on that debt than
you ever would by paying it off yourself. You end-up carrying the debt over a
much longer term, 30 years on a 30 year note, and the accumulated total interest
charged is much, much higher. Even tens of thousands of dollars
higher!
Yes, there are tax benefits to this and you can deduct the
interest from your mortgage off of your taxes. But, what happens cash-flow-wise
is that the customer is stuck with an elevated monthly mortgage payment over the
LONG TERM. Short term, the combined total monthly cash flow is lower by
combining debt, but long term their monthly mortgage payment will be higher than
what they originally started with.
In order words if the customer simply
got a debt consolidation loan or a HELOC from their bank, at least when the debt
is finally paid off, they would still have the same low monthly mortgage they
have now. By paying debt though refinancing, long term the customer shoots
themselves in the foot by paying a higher interest rate and having a higher
monthly mortgage payment (which will never go back down unless they refinance
again or pay off the note).
These types of refinance loans made sense
when rates were low and customers were cutting both their monthly mortgage rate
and monthly payment. It was logical and the financial benefits could be seen in
black and white. Nowadays, these debt-consolidation mortgage loans are almost
un-sellable. It's simple economics and no matter how you try to push it, it's a
very hard sell indeed. You would not only be doing the customer a disservice but
yourself.
Give up on these types of refinance loans for now. Focus on
purchase loans and sub-prime. That's where the money is and that's how you're
going to succeed in this market.
Got an opinion? We want to hear from you. Post your thoughts or comments here in our Mortgage Warrior Forum. Come join the conversation and say hello...onward mortgage warrior!
|
Join Now Warriors Wanted
