Refinance? Again?

You probably don’t remember The Man in the White Suit, a 1951 film. I remember only because I’m an Alec Guinness fan. In this film Sir Alec plays a scientist who invents a cloth that doesn’t wear out and doesn’t require cleaning. Sounds great, doesn’t it? It did until the clothing workers figured out that once someone has one of these suits, they won’t need to buy clothes any more. Then the workers in the dry cleaning industry figure that they’ll be out of their jobs soon too. Alec ends up with a mob after him. I won’t tell you how it ends. Go rent it from Blockbusters or Netflix. It’s a cute film.

In fact, there is an argument that the lending industry has done the same thing Alec The Scientist did. We’re shot ourselves in the foot. As many as 20 million of Americans refinanced their home in the last couple of years, most into loans that had interest rates at what are very low rates by historical standards. That’s 20 million homeowners who will not need our industry for years to come, maybe never. When we lenders used to sit down and plan for next year we knew we could always count on some of them showing up for a refinance. Not now.

But the fact is that there are another 40 million plus homeowners who did not refinance. What about them? Many of them, no doubt, had loans with interest rates that were low enough so that it just didn’t seem that attractive to lower it another notch. Or maybe they started out and then rates jumped up a bit so they quit and didn’t resurrect the deal when rates fell again. Remember that the market has been very volatile.

Rates have fallen again with the 10-year Treasury yield back to just over 4 percent. Mortgage rates have fallen too. The latest weekly survey of rates showed that rates on 30-year fixed rate loans are below 6 percent for the fifth straight week, currently 5.77 percent. That is lower than the average rate in 2003. And with all I’ve taught you, you certainly can find a lender that can beat the average! In just the past few days we’ve locked in 15 year loans and 5/1 ARM loans at numbers that start with a 4! Who cares?

Well, a FreddieMac economist says that about 15 percent of homeowners have rates that are in between 7 and 9 percent. Another 33 percent are between 6 and 7 percent. That means that almost half of homeowners ought to be evaluating their options.

Sadly, most people don’t know how to do this. They can easily see the mountain of costs that lie before them, but they just don’t know how to calculate the potential savings. Sometimes the decisions people make are stupifying. I once had a couple whose savings over 15 years was over $100,000, yet $5,000 in closing costs turned them off. They said, “Your costs are too high,” and they went away and never did anything! They didn’t even call back to ask if I could do a no-cost loan for them, which we could have done and it would have saved them a lot. Heck I would have paid all the costs if they’d just given me half of the savings!

It’s really too bad, but it is illustrative of the way too many people approach mortgage questions. They just don’t have the training or experience so they tend to make simple – and wrong – assumptions. The way to do it is get out your mortgage information and then find a lender using the ideas I have suggested to you. You can then discuss your situation sensibly. If you need a little further reinforcement and resolve, look at some of the articles at the Savvy Borrower website.

I know that some readers out there will be able to save thousands of dollars and I hope that it is you and that you start today. I also hope that you write and tell me about your success.