Common Myths About Refinancing a Home

I am amazed by how many people think refinancing is a bad thing these days. For some, it does not make sense. However, for the majority of homeowners, it does make sense. Here is a real-life example of how refinancing can be beneficial.

The homeowners had 28 years left on a 30-year mortgage with a 2.75% interest rate. They financed $475,000 on their mortgage. This would be a total payback in interest of $698,000. On top of the mortgage, these clients had more than $100,000 in credit card debt. Between the mortgage payments and credit card payments, they were spending $5,700 a month on debts, and the compounding interest on the credit cards prevented the balances from decreasing.

After we reviewed their options, we found they could use their equity to pay off all the credit cards, not have any money due out of pocket and save $1,410 a month in cash flow. After using their mortgage to pay off their debt and refinancing their 2.75% rate, they were able to spend the same as they had been on total debts, paying off the mortgage — and becoming debt-free — in 15 years. That will eliminate 13 years of mortgage payments, saving them more than $302,000 in interest.

Here are some common myths about refinancing:

1. Higher rates do not save money.
   False. It depends on the client’s situation. More than 80% of homeowners can benefit from refinancing.
2. I have to bring money to closing for a refinance.
   False. No money is owed at closing on a refinance. The only out-of-pocket expense is the appraisal fee, which ranges from $450 to $650.
3. Refinancing means I cannot manage my money.
   False. The previously mentioned clients accumulated their debt from starting a new business, which is beginning to thrive now that they are able to focus on their company instead of worrying about finances. I have many clients who are accessing cash to buy property and invest in their future.

These are just a few examples of the many refinancing myths that exist. I encourage people who are in debt to look at their options; they might have a lot of equity in their home. The market is not going anywhere, as the demand is outweighing the supply.

– Jay White, an independent mortgage broker, ranks in the top 1% in the nation in mortgage closings, according to Mortgage Executive magazine. He has 21 years of experience and is a multimillion-dollar producer.