Tips from a Senior Loan Officer: Purchasing and Refinancing Your Home

If you’ve worked with me on a loan in the last 14 years, I probably told you something like, “This is the best rate, you’ll never have to refinance.” 

Well, I’m glad I was wrong, but I’m really surprised that I was wrong. No one expected rates to go under 3%. Who could have predicted 2020?

At least one thing is pretty certain: It’s an excellent time for people to refinance. Let me tell you how.

Unless you’re somebody that’s very financially stable, go for the 30-year mortgage. I’m a big advocate of keeping monthly payments on the house you live in very low—The most important reason? Look at where we are now. 

If you were a waiter in New York City making $150K before COVID, you would’ve never thought you’d be in the situation you’re in now. Things like that can and do happen. And if you have a 15-year mortgage on top of a financial crisis, it’s a heck of a lot harder to make your monthly payment than if you have a 30-year mortgage.

On the flip side, if things are good and you’re making money, you can always pay extra. There’s no penalty. There’s nobody saying you can’t. When things are good, pay extra. At least then, you have the flexibility of having a lower payment should you need some extra cash flow or your financial situation change.

On that note, if you do have extra money per month, you’re much better off putting it into a retirement account, stocks, bonds, or any sort of investment vehicle

For example, if you’re choosing between a $3K mortgage payment on a 30-year mortgage or a $4.5K mortgage payment on a 15-year mortgage, take the 30-year mortgage. And that extra $1.5K a month? Invest it. That money will grow a lot quicker, make you a lot wealthier, and you’ll potentially retire a lot sooner. Think about it: Once your 15-year mortgage is paid off, then what? You have no bills, but where are your investments? What are you going to live off of?

This is a rare time, and people should be taking advantage of it. People should be refinancing. They should be lower their housing expenses as low as they possibly can. And whatever excess cash they have, they should be investing.

My next piece of advice is this: If it makes sense to refinance, always just do it now. I have a couple of reasons why.

We’re talking about risk versus reward. Normally, rates usually take a long time to change dramatically. They won’t change 0.5% overnight. That usually takes a couple of months, unless there’s a major event… Like an election, or a vaccine. Those could cause stocks to rally and interest rates to go up. 

So, when you’re looking at an interest rate as low as they are now, I always tell people: be realistic. Is it really worth gambling? Instead of gambling and trying to get 2.5% when you’re being offered 2.8%… Just take the 2.8%. If you’re wrong and rates shoot up, they’re gone. I’m a big proponent of ripping the bandaid off.

The second reason is that loan programs change. Guidelines change. It’s very difficult for a self-employed person to get a mortgage right now. It may get even more difficult in the future. So if you can qualify now, you’re better off doing it. I’ve had clients that have been approved for a refinance and held off to see if rates got better. Six months later, the loan program is gone, or because of marketing conditions, they no longer qualify. 

When it comes to borrowing money, if it’s there, take it. Because nobody knows what the future holds.

Lastly, I think a lot of people need to hear this piece of advice on purchasing a home: Don’t buy into the hype. 

If you’re looking to purchase a home, don’t be in such a hurry to move to the suburbs. Don’t overpay by $50K – $70K just because it’s a property in New Jersey with a little bit of land. Interest rates will probably remain in this vicinity. Wait to see what happens into next year. We’re seeing a big exodus out of the city and people paying top dollar for a lot of these houses, but they may regret it later. 

Conversely, you couldn’t pay me to buy a condo in New York City right now. If you want to purchase something in a major city, hold off. You will probably see prices go down for condos in major cities. Don’t rush into a purchase. The hype of home purchasing can be contagious, but everybody’s financial situation is different. 

Remember: If you’re ready, you’re ready. If you’re not, you’re not.

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