Maintaining client relationships means hopefully selling them another house in the future, and representing them as the seller agent as well. As such, itās imperative you guide them in all aspects of homeownership even in times when they are not buying or selling. One key topic is refinancing. Here are four mortgage refinancing mistakes to make sure they avoid before undertaking the process.
Not shopping for the best rate
While they may start the process with the bank holding their mortgage, quotes should be sought from multiple lenders. The rates, fees and terms of each refinance option should be carefully compared before making a decision. Hopefully you will have bank contacts to make the legwork easier for them, even if those banks donāt win out.
Not knowing how long theyāll stay there
Itās crucial to have at least a general estimate of how many more years they plan to stay in the house before refinancing, to ensure that the costs incurred are worth it. This can be determined by dividing the total loan costs by how much they will save each month over the course of repayment. Anyone planning to sell soon should not refinance.
Focusing only on the interest rate
The interest rate for the mortgage refinance is the number one factor, but there is something else to consider as well. A mortgage with a low rate and short term will have higher monthly payments, while one with a higher rate but longer term will have lower ones but higher overall costs since the interest will be paid over an extended period.
Not factoring in closing costs
Those who have never refinanced might think itās just a matter of quick paperwork, but the process is more like buying the home all over again. Many of the closing costs, such as the application, origination and home appraisal fees will have to be paid anew, costing anywhere between 2-5% of the amount of the new loan.
Refinancing is not always the best way to go. Suggest before refinancing, look at re-amortizing or recasting the existing note. If you add additional funds to the principal, this is far less cost, and the mortgage payments are readjusted to reflect the new principal balance. Other considerations are the payback time. how long until the cost to refi is recaptured in the new, lower payment. Cost to recast/re-amortize the note is around $350 versus 2-5% for a new note plus the interest cost restarts with a new note, it actually continues lowering with recasting.