By Trevor Hammond
Diane walked into the house, setting down her things in the kitchen after a long day at work. “Did you hear that rates have dropped? Should we be looking into refinancing?”
Her husband Jack replied, “Yes, I did. Some people at work have been talking about that for the past week. But we just bought our house less than two years ago so it’s probably too soon.”
Diane thought about this. She agreed that it hadn’t been very long since they got their mortgage, and their interest rate already seemed pretty low. On the other hand, they had only put 10% down when they purchased the home so they were also paying monthly mortgage insurance.
Since they had purchased their first home, cash flow had been a bit tight, especially after their second child was born and Diane had cut back her hours at work to be with their two young children. But she couldn’t help but wonder if the rise in home prices around them might also help them get rid of the mortgage insurance?
The following day, Diane decided to take the initiative and called her Mortgage Advisor, Trevor. Trevor had helped them buy their house initially, and she at least knew that Trevor would tell her if it was crazy to be thinking about refinancing so soon.
By the end of the conversation, Diane had moved from skeptical, to relieved, to outright excited! Not only did it seem that they had enough equity in their house to now get rid of the mortgage insurance, but it appeared that they would be able to reduce their interest rate by .5%. Altogether, Trevor estimated that Jack and Diane would save just over $200 per month.
“But what about the closing costs?” Diane asked?
“Yes, there are some costs involved,” Trevor explained, “but here is a break-even analysis I’ve prepared for you. With your monthly savings, in addition to having no payment due the first month after we close your new loan, you will break even on the costs in only eight months! So, as long as you guys aren’t planning on moving before then, you can rest assured this is a smart financial move.”
“Now,” Trevor continued, “there is only one thing that can erode all of these great benefits of refinancing.”
“What’s that?” Diane asked, with a confused tone.
Trevor began to explain one of the biggest financial mistakes he had watched homeowners make over the years.
“Too many homeowners refinance their home, lower their monthly payments, and free up cash flow they never had before. Then, they have nothing to show for it years later. The savings simply got absorbed into their spending habits. My request is for you and Jack to decide where you will allocate the $200 each month that we are freeing up for you. This is a tremendous opportunity to super-charge your kid’s college funds, boost your retirement contributions at work, or pay off that nagging student loan faster. So will you commit to me that you’ll put this money to good use, and use this refinance as a catalyst for a better, safer financial future?”
Diane had never even thought about what a bigger role this refinance could play in helping to achieve the rest of their financial goals. They were barely saving $200 per month now, and this would double what they could put away into savings!
Diane thanked Trevor for his advice and quick analysis and promised to complete the loan application and get the paperwork over to his team by tomorrow. She couldn’t wait to share the good news with Jack.
What is the moral of the story? Two incredible things are happening at the same time: Rates are back down to all-time lows AND real estate values are up. Many homeowners have never enjoyed this perfect combination for refinancing. Take the time to reach out to your preferred Aspire Mortgage Advisor for a complimentary review of your current mortgage. With good, honest advice and analysis, you will either walk away with peace of mind that you are already in the best position, or you will find a tremendous opportunity to improve your financial future.