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3 Banking Moves That Can Tank Your Refinance

3 Banking Moves That Can Tank Your Refinance – SmartAsset

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If you’re gearing up to refinance your mortgage, the lender’s going to want to check out your credit and assets before you’re approved. One of the things they’ll pay attention to is what’s in your bank account. So if you haven’t gotten those statements ready yet, there’s no time to waste. If you don’t want to raise any eyebrows with the lender, there are certain banking moves you probably won’t want to make until after refinancing.

Check out our refinance calculator. 

1. Moving Your Money Around Too Much

Any time a bank lends you money, they’re taking on a certain degree of risk. Seeing that you’ve got a nice wad of cash saved up can quell any fears they may have about approving your refinance. The problem is that it can be difficult to see what the bottom line is if you’re constantly transferring money back and forth between accounts.

If you’ve set up regular transfers from your checking to savings, that could work in your favor since you’re growing your balance. There’s an issue, however, when you’re regularly pulling money out of savings and moving it somewhere else. This move could give the impression that you’re not very adept at managing your finances. When a refinance is on the horizon, it can be a good idea to take a hands-off approach so your statements reflect a stable balance history.

Compare mortgage refinance rates.

2. Making Large Deposits or Withdrawals

Pulling a lot of money out of your account is also another potential trouble spot. The bank might ask for an explanation and that could cause them to reevaluate your entire application. If you’re planning to make a big purchase in cash, you might be better off deferring it until after the lender gives your refinance the green light.

The same thing goes for suddenly making a sizable deposit out of the blue. If your balance increases overnight by thousands of dollars, that’s something the lender’s going to notice. Even if there’s a good reason – such as a relative or friend gifting you money for closing costs – the bank may still have concerns over your ability to repay. If you have to make a large deposit for any reason, it’s a good idea to be prepared to explain why and to provide supporting documents if you have them.

Try using the free SmartAsset closing costs calculator. 

3. Opening or Closing Accounts

Again, lenders want to see a certain degree of continuity when it comes to your banking habits so in the month or two prior to refinancing, you might want to steer clear of opening new accounts or closing old ones. Sure, there are some great account opening bonuses to cash in on these days, but if you’ve got five or six different accounts at several banks, your lender could wonder why you need so many.

Closing accounts is also probably a bad idea, especially if they’ve been open for a while. While closing an account won’t hurt your credit score the way getting rid of a credit card would, the bank isn’t likely to look on it favorably. If you don’t have statements for your new account showing where the money went, that could work against you when you apply for a refinance.

Final Word

Refinancing can save you a lot of money in the long run if you’re able to lower your interest rate or reduce your payments. How you manage your bank accounts prior to and during the refinance process can determine whether your loan application gets the seal of approval.

Photo credit: ©iStock.com/christophe_cerisier, ©iStock.com/dobok, ©iStock.com/DNY59

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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Why There’s No Way to Avoid Paperwork When Refinancing

Why There’s No Way to Avoid Paperwork When Refinancing – SmartAsset

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So you’re ready to refinance your mortgage loan to one with a lower interest rate. This could be a good move. Depending on your new interest rate, you could save a good bit of money each month in mortgage payments. You might also think that because you’re refinancing with your current mortgage lender, the one you already send your home loan payment to each month, you won’t have to come up with the reams of paperwork usually involved in a mortgage refinance.

Check out our refinance calculator. 

On this latter point, you’d be wrong. Your mortgage lender will always require you to come up with certain documents to prove your income, job status and credit score. This holds true even if you’re refinancing with the mortgage lender who is servicing your existing loan.

So get ready to dig for that paperwork. When you’re refinancing, there’s usually no way around it.

Existing Lenders Need Papers to Approve a Refinance

You might think this makes little sense. After all, your mortgage lender verified your job status and income just five years ago when you took out your existing mortgage loan. But look at it from your mortgage lender’s perspective. Your lender’s job is to make sure you can make your mortgage payments each month, without defaulting on them.

When you apply for a refinance, your lender must verify that your financial situation hasn’t changed since you were first approved for a mortgage loan. Your lender doesn’t know if your spouse lost a job or that you no longer own a rental apartment that once provided steady income each month.

Related Article: 3 Smart Reasons to Refinance Your Mortgage

If your income has changed since you first applied for a mortgage loan, you might not be able to afford your new monthly payment, even if it’s smaller than the one you’re making now. So your lender, playing it safe, requires you to verify your employment status and income before approving you for a refinance, even if he or she has been receiving regular home loan payments from you for years.

Here’s the interesting part of all of this: Because your current lender will require you to provide as much paperwork as any other one would, you might as well shop around when you’re ready to refinance. You can choose any lender licensed to do business in your state. And you might find someone offering a lower interest rate than your existing lender.

The Documents You’ll Need to Refinance

If you are ready to refinance – whether with your current lender or a competitor – you’ll have to provide certain information to prove your income and job status.

You’ll likely have to submit pay stubs from at least the past month and your W-2 forms from the last two years. You’ll need to send copies of your most recent bank account statements and maybe even your tax returns from the last two years.

Your lender will also check your credit to determine whether you have a history of paying your bills on time. Again, you might find this strange. Haven’t you been sending in your monthly mortgage payments to this lender? What your lender doesn’t know is if you’ve been paying your car loan or student loan payments by their due dates. Your credit score will give lenders a more complete view of your financial habits.

Related Article: 3 Must-Do Moves to Prepare for a Mortgage Refinance

Bottom Line

Providing all this paperwork isn’t much fun. But it’s the only way mortgage lenders can make sure you can afford to refinance. This holds true even if you’ve already established a long-term relationship with your lender.

Photo credit: ©iStock.com/sturti, ©iStock.com/Rawpixel, ©iStock.com/DragonImages

Dan Rafter Dan Rafter has been writing about personal finance for more than 15 years. He is an expert in mortgages, refinances and credit issues. Dan’s written for the Washington Post, Chicago Tribune, Phoenix Magazine, Consumers Digest, Business 2.0 Magazine, BusinessWeek online and dozens of trade magazines.

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3 Refinancing Mistakes That Can Cost You Money

3 Refinancing Mistakes That Can Cost You Money – SmartAsset

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Mortgage rates are currently very low, but you can’t expect them to stay that way forever. If you bought a home within the last five to seven years and you’ve built up equity, you might be thinking about refinancing. A refinance can lower your payments and save you money on interest, but it’s not always the right move. In fact, these three mistakes could end up costing you in the long run.

Mistake #1: Skipping out on Closing Costs

When you refinance your mortgage, you’re basically taking out a new loan to replace the original one. That means you’re going to have to pay closing costs to finalize the paperwork. Closing costs typically run between 2% and 5% of the loan’s value. On a $200,000 loan, you’d be looking at anywhere from $4,000 to $10,000.

Homeowners have an out in the form of a no-closing cost mortgage but there is a catch. To make up for the money they’re losing up front, the lender may charge you a slightly higher interest rate. Over the life of the loan, that can end up making a refinance much more expensive.

Here’s an example to show how the cost breaks down. Let’s say you’ve got a choice between a $200,000 loan at a rate of 4% with closing costs of $6,000 or the same loan amount with no closing costs at a rate of 4.5%. That doesn’t seem like a huge difference but over a 30-year term, going with the second option can have you paying thousands of dollars more in interest.

Mistake #2: Lengthening the Loan Term

If one of your refinancing goals is to lower your payments, stretching out the loan term can lighten your financial burden each month. The only problem is that you’re going to end up paying substantially more in interest over the life of the loan.

If you take out a $200,000 loan at a rate of 4.5%, your payments could come to just over $1,000. After five years, you’d have paid more than $43,000 in interest and knocked almost $20,000 off the principal. Altogether, the loan would cost you over $164,000 in interest.

If you refinance the remaining $182,000 for another 30 year term at 4%, your payments would drop about $245 a month, but you’d end up paying more interest. And compared to the original loan terms, you’d save less than $2,000 when it’s all said and done.

Mistake #3: Refinancing With Less Than 20% Equity

Refinancing can increase your mortgage costs if you haven’t built up sufficient equity in your home. Generally, when you have less than 20% equity value the lender will require you to pay private mortgage insurance premiums. This insurance is a protection for the lender against the possibility of default.

For a conventional mortgage, you can expect to pay a PMI premium between 0.3% and 1.5% of the loan amount. The premiums are tacked directly on to your payment. Even if you’re able to lock in a low interest rate, having that extra money added into the payment is going to eat away at any savings you’re seeing.

The Bottom Line

Refinancing isn’t something you want to jump into without running all the numbers. It’s tempting to focus on just the interest rate, but while doing so, you could overlook some of the less obvious costs.

Photo credit: ©iStock.com/ruigsantos, ©iStock.com/hjalmeida, ©iStock.com/cookelma

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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How Refinancing a Mortgage Can Affect Your Credit

How Refinancing a Mortgage Can Affect Your Credit – SmartAsset

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When you’re interested in reducing your mortgage rate and lowering your monthly mortgage payments, refinancing may solve some of your problems. While you’re going through the process of refinancing, you may forget to consider how it could affect your credit score. Here are a few things you’ll need to take into account before setting out to get a better deal on your home loan.

Your Lender Will Check Your Credit Report

If you apply for a refinance loan, your lender will check your credit score and your credit report. Having a lender review your credit information will trigger a hard inquiry. New credit inquiries show up on your credit report and account for 10% of your FICO credit score. Each new inquiry for credit can knock a few points off your credit score.

Generally, if you’re rate shopping within a small window of time (14 to 45 days), multiple loan applications will show up as a single inquiry on your credit report. On the other hand, if you spend several months applying for different refinance loans multiple inquiries will appear on your credit report. Your credit score may drop significantly, meaning that it’ll be harder to qualify for a loan or lock in the best rates.

Tapping Your Home Equity Could Negatively Affect Your Score

If you’ve built up equity in your home, you might want to tap into it to complete some much-needed repairs or tackle a large-scale renovation. But by getting a home equity loan or a home equity line of credit, you’ll be increasing your debt load.

Thirty percent of your FICO credit score depends on how much debt you owe. If you take on more debt, you’ll increase your credit utilization ratio. Having a high debt-to-credit ratio can hurt your credit score and make you look like a risky borrower.

Closing out Your Old Mortgage Loan Could Work Against You

When you refinance a mortgage, you’re essentially paying off your existing home loan with a new one. When it comes to your credit score, the age of your credit accounts matters. In fact, 15% of your FICO credit score is based on the length of your credit history.

Having a long credit history can help you since it’ll give lenders a better idea of how you manage debt. As a result, closing out a mortgage that you’ve had for years could hurt your credit score, particularly if you’re taking out a new home loan at the same time.

Paying Either Mortgage Loan Late Could Spell Disaster

Refinancing a mortgage takes time. And until you’ve signed off on your new loan, you’ll still have to keep up with the payments on your existing loan. Making a late mortgage payment can damage your credit score. In the worst-case scenario, your lender could cancel your refinance loan if a late payment causes your credit score to fall.

If your lender approves your application for a refinance loan, you’ll need to know when your first payment is due. Depending on when your loan closed, you may be able to “skip” a month or two before making your first payment. Generally, mortgage payments are due on the first day of every month. Your lender may offer a grace period but you’ll need to confirm that.

The Bottom Line

Refinancing can save you money if you can reduce your mortgage rate. But it’s important to consider how a refinance might impact your credit. Checking your credit report before and after you refinance is a smart move if you don’t want to be caught off guard by any surprises.

If you want more help with this decision and others relating to your financial health, you might want to consider hiring a financial advisor. Finding the right financial advisor that fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with top financial advisors in your area in 5 minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.

Photo credit: ©iStock.com/Squaredpixels, ©iStock.com/kali9, ©iStock.com/elenaleonova

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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Is Refinancing Worth It?

With mortgage rates at or near record lows, a lot of existing homeowners are probably asking themselves, “Is refinancing worth it?”

The problem is there’s no absolute right or wrong answer to this question, though with interest rates a lot lower than they were a year or two ago, the answer to this question will often be YES.

Simply put, if there’s a larger spread between your existing mortgage rate and current refinance rates, it’s that much easier to save money.

Conversely, if rates haven’t budged much since you last obtained a home loan, you’re going to have to get knee-deep in the math to ensure it makes sense financially.

This Is the #1 Reason Homeowners Don’t Refinance

why not refinance

  • If you’re questioning whether a refinance is worth it you’re not alone
  • It’s actually the top reason why homeowners don’t bother refinancing
  • 34% said so in a new survey from YouGov for Forbes Advisor
  • But instead of wondering, take action and determine if a refinance can save you money

As noted, lots of homeowners are probably mulling over a mortgage refinance, even those who just refinanced last year, or perhaps even earlier this year.

The top reason they haven’t yet is because they’re not sure it’s worth it, followed by a good chunk saying they just recently refinanced (how soon can I refinance?). Others are concerned about fees, rightfully so.

A mortgage requires work – it isn’t a set it and forget it situation. Since mortgage rates can change tremendously over time, you’ve got to be an active participant.

Or, you can simply say forget it and miss out on substantial savings. But why would you continue to pay a 30-year fixed set at 5% if you could snag a rate in the 2% range or lower?

Just for quick illustration, the monthly mortgage payment on a 30-year fixed set at 5% is $1,610.46 for a $300,000 loan amount.

If you were to refinance that same loan amount down to a 2.75% rate, all of a sudden your monthly payment is $1,224.72.

That’s a savings of roughly $385 per month, which could afford you a pretty nice car every month. Or go toward your retirement savings, or simply boost your emergency fund.

There’s plenty you could do with an extra ~$400 per month, but there aren’t a lot of ways to easily generate those types of savings nearly overnight.

Refinance Savings Can Be Incredible, But Don’t Forget the Closing Costs

is refinancing worth it

  • Once you take into account the difference in monthly payment on the old and new loan
  • You need to consider the closing costs required to fund your refinance loan
  • Along with your expected tenure in the property (and how long you plan to keep the mortgage)
  • Also pay attention to loan term to ensure you don’t regretfully reset the clock

Before we get ahead of ourselves, it’s not simple enough to merely compare before and after mortgage payments. I wish it were, but it’s not.

You’ve got a few more things to consider before submitting your refinance application.

One of the biggies is closing costs, which can amount to thousands of dollars. Going back to our example, imagine it costs $8,000 to complete that refinance.

Yes, lots of different parties need to get paid for refinancing your loan, including loan officers, processors, underwriters, appraisers, title and escrow companies, and so on.

All of a sudden, you’re in the hole. The good news is each lower mortgage payment will extinguish that debt, and each payment will pay down more principal since you’ve got a lower interest rate.

So while it may not take long to get back in the black, it could still take a year or two to get there depending on the savings.

And if we’re talking about narrower margins, unlike our example above, it could take 3-5 years to break even on those refinance costs.

That’s why you also have to consider your expected tenure in the property. What happens if you refinance your mortgage, then decide to move a year later?

Well, if you paid a bunch out-of-pocket, you may have lost money, and the refinance actually wasn’t worth it.

The same could be said about a situation where mortgage rates drift even lower, and you find yourself refinancing just six months or a year after your prior refinance.

The good news is there are options to avoid losing money if your plans take an unexpected turn.

I’m referring to a lender credit, where the bank pays all or most of your closing costs in exchange for a slightly higher mortgage rate.

This is how a no cost refinance works, and could be a good compromise for someone who isn’t sure how long they’ll stick with the mortgage/house, but wants to take advantage of the savings on offer.

While your rate may not be the lowest out there, if there’s a sizable margin, you could still make out pretty well.

One last thing to consider is resetting the clock – that is, restarting your loan amortization if you refinance from a 30-year fixed to another 30-year fixed, or to any home loan that extends your aggregate term.

This essentially sets you back in terms of when your mortgage will be paid off, which if it’s a goal of yours, can get in the way of your plans.

The good news, once again, is you always have the option of paying more each month on the refinanced loan.

So if you don’t want to commit to a shorter-term mortgage, such as a 15-year fixed, you can still make 15-year fixed sized payments each month and stay on track.

Of course, some folks are happy to extend their loan term and put their hard-earned money to work elsewhere where it can generate a better return, such as the stock market.

With mortgage interest rates in the 1-2%, it doesn’t take much to beat the market, and a mortgage can be good debt.

As for refinance rules, I don’t buy into them because everyone is so different and your unique situation needs a little more thought than a blanket rule.

Read more: The Refinance Rule of Thumb

(photo: Quinn Dombrowski)

Lock in a lower rate.

Source: thetruthaboutmortgage.com

3 Questions for Anyone Refinancing to a 15-Year Mortgage

3 Questions for Anyone Refinancing to a 15-Year Mortgage – SmartAsset

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If you’re tired of having mortgage debt, refinancing from a 30-year loan to a 15-year loan will allow you to pay it off faster. On top of that, you’d also pay less in interest, as shorter loans come with better rates. Refinancing to a 15-year mortgage has some definite perks, but it’s not always the right move for everyone. Asking a few key questions beforehand can help you decide if it makes sense for your situation.

Refinancing your mortgage can have an effect on your overall financial plan. Talk to a local financial advisor today.

Question #1: Can I Afford the Payments?

Shortening your loan term conversely increases your monthly payments and you need to understand how that’s going to affect your budget before signing on. Seeing your payments increase by several hundred dollars may not mean much if you were already paying extra toward the principal, but it could be a deal breaker if it becomes too taxing on your income.

If you have a $200,000 mortgage, for example, refinancing to a 30-year fixed term with a 4 percent interest rate would put your monthly payments at about $955, assuming that you made a 20 percent down payment. Going with a 15-year loan instead with a 3 percent rate would increase your payments to nearly $1,400 a month. That’s roughly the equivalent of a car payment, so if you don’t think your budget can handle it, you want to know that sooner rather than later.

Question #2: Is the Savings on Interest Worth the Higher Payment?

Refinancing to a 15-year loan will certainly save you some money on interest, but it’s important to figure out whether it’s justified by those higher payments. Using the same $200,000 mortgage as an example, that 30-year fixed loan would initially cost you about $666 per month in interest. On the other hand, you’d start out paying about $498 per month in interest by choosing a 15-year fixed mortgage.

Obviously, that’s a pretty big difference, but you also have to take into account what the extra money you’re spending on payments would be worth if you invested it instead. If the difference in your payments with a 15-year loan versus a 30-year loan comes to about $168 a month, that’s money you could put into an IRA.

Question #3: Will I Risk Losing Out on a Bigger Tax Break?

Homeowners can ease the sting of all that interest they’re paying on a 30-year loan by writing it off at tax time. The IRS allows you to deduct interest you pay on primary and secondary mortgage loans as long as you itemize. Deductions reduce the amount of your income that’s subject to tax.

When you refinance to a 15-year loan, you can still take the deduction for your mortgage interest but it loses some of its value since you’re not paying as much interest. You’ll also have less time to benefit from it, which may work against you as you get closer to retirement. If you’ve built up a substantial nest egg and you’re expecting your tax rate to increase during your golden years, the loss of the mortgage interest deduction could make a significant difference in the size of your tax bill.

Bottom Line

If you’re heavily in favor of getting rid of your mortgage, refinancing to a 15-year loan can put you on the fast track to mortgage debt freedom. Just be sure you’ve weighed all the pros and cons first so you don’t end up getting in over your head.

Financial Planning Tips

  • Before deciding whether to refinance or not, think about the impact that altering your mortgage could have on your budget and financial plan. SmartAsset’s free tool can match you with financial advisors who can help you determine what’s best for you. Get started now.
  • Having a stringent budget in place is a great way to get your long-term financial plan off on the right foot. This might include not only watching your spending on a monthly basis, but also on a weekly basis. From here, you can begin to safely set aside money for your retirement savings and other goals for the future. For help putting together a budget, stop by SmartAsset’s free budget calculator.

Photo credit: ©iStock.com/Justin Horrocks, ©iStock.com/Geber86, ©iStock.com/Andrew Rich

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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Mortgage Lending Volume Hits Highest Level on Record Despite COVID-19

Posted on September 9th, 2020

It makes sense that the mortgage industry would see its best quarter in history during a global pandemic.

Okay, it doesn’t make sense, but that’s what happened anyway, per the latest Mortgage Monitor report from Black Knight.

Mortgage Lenders Originated $1.1 Trillion in Home Loans During the Second Quarter

record originations

  • Mortgage lenders experienced best quarter in history during Q2 2020
  • Driven most by refinance loans thanks to record low mortgage rates
  • Refinancing was up 60% from first quarter and 200% from a year earlier
  • Purchase lending was only down 8% from a year earlier despite pandemic

The data analytics firm said about $1.1 trillion (yes, trillion) in first-lien mortgages were originated during the second quarter of 2020, the best three months on record since reporting began in January 2000.

The record numbers were mostly fueled by mortgage refinance transactions, which have surged due to continued record low mortgage rates, helped in part by the COVID-19 pandemic.

They said refinance lending was up more than 60% from the first quarter alone, and more than 200% higher than the same time last year.

Such home loans accounted for almost 70% of all first-lien mortgage originations in terms of dollar value, compared to just 39% in the second quarter of 2019.

Meanwhile, home purchase lending was down about eight percent from a year earlier, which is surprisingly strong given the economic uncertainty surrounding the coronavirus.

Some $351 billion in home purchase loans were originated during the quarter, thanks again to low mortgage rates and improved housing affordability that returned demand to its pre-COVID levels quickly.

We Might Set Another Record in the Third Quarter

purchase rate locks

  • The third quarter of 2020 might be even better than the second
  • Rate lock data reveals that many more home loans are slated to close in Q3
  • And there are still nearly 18 million homeowners ripe for a refinance
  • So there’s plenty of business left despite the already big numbers

Despite those amazing numbers, the record set in the second quarter might be very short-lived.

Based on rate-lock data gathered by Black Knight, the third quarter is looking like it’s going to be even bigger.

The company said locks on home refinance loans are up 20% from the second quarter, assuming these loans close during the third quarter based on a 45-day lock-to-close timeline (how long does it take to close a mortgage).

They also pointed out that there are still nearly 18 million homeowners with sufficient credit scores and at least 20% home equity who could reduce their mortgage rate by at least 0.75% by refinancing.

And purchase locks that are scheduled to close during the third quarter are 23% higher than the seasonal expectation, which could be an indication of making up for lost time during the early days of the pandemic.

The second and third quarter combined purchase locks are more than 6% above their expected seasonal volume based on January’s pre-pandemic baseline.

So in essence, the traditional spring home buying season was merely shifted into the summer months, which is great news for real estate agents and home builders.

Most Homeowners Refinance with a Different Mortgage Lender

servicer retention

  • Customer retention continues to be an issue for mortgage lenders
  • About one in five borrowers use their original mortgage lender when refinancing
  • Despite very marginal differences in interest rates among lenders
  • But given how busy they all are it might not matter right now

Lastly, Black Knight highlighted the awful retention rates in the mortgage industry.

Simply put, most borrowers don’t stick with their old mortgage lender when refinancing the mortgage.

Instead, they go with a new company, as indicated by the fact that just 22% of rate and term refinances and 13% of cash out refinances were retained in loan servicers’ portfolios.

Essentially, less than one in five homeowners went back to their original lender during the second quarter.

Interestingly, the difference in mortgage rate pricing for rate and term refinance borrowers (into GSE mortgages) was only seven basis points lower on average than borrowers who stuck with their original company.

So while pricing is key to drumming up business, it shows lenders could probably retain many of their customers given the very marginal price difference.

Of course, it might be a case of a lender merry-go-round, with lenders simply taking each other’s business over time, as opposed to some lenders losing out.

Nonetheless, identifying those borrowers ripe for a refinance should be a top priority for lenders/servicers if they’re interested in driving more business and growing their portfolios.

Lock in a lower rate.
About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for nearly 15 years.

Source: thetruthaboutmortgage.com

Should You Refinance Your FHA Loan to a Regular Loan?

Should You Refinance Your FHA Loan to a Regular Loan? – SmartAsset

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Mortgage refinance rates are steadily creeping upward, so if you’ve been toying with the idea of a refinance, it might be best to do it sooner rather than later. If you’ve got an FHA loan, you can go with a streamline refinance or transition to a conventional mortgage. Going with a conventional loan has some advantages, but it’s a good idea to weigh all the pros and cons before making a move.

FHA Loans vs. Conventional Loans

First-time buyers often prefer FHA loans because the down payment requirements aren’t as stringent. But the Federal Housing Administration usually requires borrowers to pay a one-time upfront mortgage insurance premium (MIP) that’s 1.75% of the loan’s value. You would also be responsible for paying an annual premium that’s built into loan payments.

When you swap out your FHA loan for a conventional loan, you probably won’t have to worry about paying for mortgage insurance at all if the equity value you’ve built up in your home is above 20%. The end result could be a lower monthly payment and big savings.  And if you could keep that money in your pocket each year, you could put it toward other debts, build an emergency fund or save for retirement.

What Are the Drawbacks of a Conventional Loan Refinance?

On the other hand, there are some costly disadvantages associated with refinancing an FHA loan to a traditional mortgage. The biggest upfront expense comes in the form of closing costs, which can be anywhere from 2% to 5% of the loan’s value. If you’re refinancing a $200,000 loan with closing costs of 3%, you’d have to bring $6,000 in cold hard cash to the closing table.

If you haven’t built up enough equity in the home, you’ll probably get stuck paying for private mortgage insurance (PMI) when you refinance. The combined costs of closing and PMI can zero out any savings in interest if you’re not getting a huge discount on the rate.

When an FHA Streamline Refinance Makes More Sense

The FHA Streamline Refinance program offers a refinance option for borrowers who want to save a little money on their mortgages. If you’ve kept up with your monthly payments for at least a year, you can apply for one without having your income, employment or credit verified.

If you’re trying to lower the cost of your mortgage payments but your credit isn’t in great shape, an FHA streamline refinance can do that for you without a lot of extra paperwork. You will, however, still have to make annual MIP payments, so it’s somewhat of a trade-off.

Shop Around for the Best Deal

When you’re not sure whether a conventional or FHA refinance is best, taking a look at what lenders are offering might help. By weighing the costs of the mortgages and adding in closing costs, you can figure out which option will save you the most money.

If you want more help with this decision and others relating to your financial health, you might want to consider hiring a financial advisor. Finding the right financial advisor that fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with top financial advisors in your area in 5 minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.

Photo credit: ©iStock.com/USGirl, ©iStock.com/blackred, ©iStock.com/vgajic

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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What Is a Serial Entrepreneur?

What Is a Serial Entrepreneur? – SmartAsset

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A serial entrepreneur starts several businesses one after another rather than beginning one venture and staying focused on it for many years like a more typical entrepreneur. Serial entrepreneurs may sell their businesses after they reach a certain level of maturity. They may retain ownership while delegating day-to-day managerial responsibilities to other people. Or, if the business is underperforming, they may close it down and move on to the next idea. Some highly successful businesspeople are serial entrepreneurs. Startups organized by serial entrepreneurs are generally regarded as attractive opportunities by knowledgeable venture investors.

It’s not uncommon for people to start businesses, experience failure and then try again. Serial entrepreneurs are generally seen as a different sort because of their track record of starting multiple successful enterprises.

There is no standard number of businesses that someone has to start to be considered a serial entrepreneur, but three may be a minimum. Nor do all the businesses have to succeed or produce profits. However, most people regarded as serial entrepreneurs have at least a couple of significant and enduring successes to their credit.

Pros and Cons of Serial Entrepreneurs

While each startup has unique characteristics, the process of beginning a new business does have some steps that are common to most if not all entrepreneurial ventures. Serial entrepreneurs learn from experience, sometimes the hard way by making mistakes, how to get an idea for a business in motion and off the ground. Along with developing skills, they acquire contacts among investors, talented employees and others who can help them with the next enterprise.

Venture capital investors have expressed a preference for backing companies founded by serial entrepreneurs because of the value the experienced startup leaders bring. This preference isn’t only for serial entrepreneurs whose past startups have all been successes. Failure can be a good teacher, according to this viewpoint, and past failure can pave the way to future success.

The practice of serial entrepreneurship can come with some limitations and risks as well as benefits. For one thing, a serial entrepreneur who builds and sells a startup that later achieves great success can miss out on the chance to acquire great wealth by cashing out too soon.

Another risk is that soon after starting a business a serial entrepreneur will be distracted by an idea for a new startup. That may lead the entrepreneur to fail to pay enough attention to the first business so that it flounders and is unsuccessful.

Examples of Serial Entrepreneurs

Many high-profile entrepreneurs have come to attention because of their long-term association with a single startup. Microsoft co-founder Bill Gates, who is not thought of as a serial entrepreneur, is an example of one of these. However, serial entrepreneurs have a special way of gaining public attention because of their repeated, sometimes spectacular, successes in a variety of fields.

One of the best-known serial entrepreneurs is Richard Branson, who has begun hundreds of  ventures in fields from airlines to soft drinks, all under the Virgin label of his first company, a mail-order record firm. Many of Branson’s new companies have been folded after failing to achieve traction. But Branson’s multiple wins in such diverse fields is one matched by few other serial entrepreneurs.

Oprah Winfrey is another serial entrepreneur who parlayed an early success into the foundation of a diverse empire, this one focused on media. Winfrey has started prominent players in television production, cable television and magazine publishing.

A more recent arrival to the scene, Elon Musk, began as a web software entrepreneur, moved to online financial services and has since been upending industries from tunnel construction to space transport. However, he joined Tesla, the electric car company that may be his most prominent venture, after it was founded.

The Bottom Line

Serial entrepreneurs go from one idea for a new business to the next, starting companies and then selling, closing or delegating them to others to manage. While their track record may not be one of perfect repeated success, their hard-won experience and demonstrated diligence makes serial entrepreneurs attractive to some new venture investors.

Tips for Entrepreneurs

  • Starting even one business is a complex and uncertain process. Before taking it on, consider working with an experienced financial advisor. Finding the right financial advisor who fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in five minutes. If you’re ready to be matched with local advisors who will help you achieve your financial goals, get started now.
  • Keeping close rein on a startup’s expenses is critical. There are four tips for doing that successfully. It’s also essential to squeeze every dollar spent to get the most out of it.

Photo credit: ©iStock.com/Drazen_, ©iStock.com/alvarez, ©iStock.com/ra2studio

Mark Henricks Mark Henricks has reported on personal finance, investing, retirement, entrepreneurship and other topics for more than 30 years. His freelance byline has appeared on CNBC.com and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.
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If a Mortgage Lender Reaches Out to You, Reach Out to Other Lenders

Posted on November 9th, 2020

A lot of homeowners are looking to refinance their mortgages at the moment. That’s abundantly clear based on the record volume of refis expected this year, per the MBA.

And while mortgage rates are in record low territory, thus making the decision to refinance an easy one for most, it still pays to shop around.

I think we all have a tendency to care less about prices when something is on sale, but there’s no reason you shouldn’t strive for even better, regardless of how cheap something is.

Look Beyond Your Current Mortgage Lender

  • New technology is making it easier for lenders to improve borrower retention rates
  • This means using the same lender for life even if their interest rates aren’t the lowest
  • But like most things loyalty often doesn’t pay when it comes to a home loan
  • So take the time to shop around and negotiate like you would anything else

Thanks to emerging technology, it has become easier for mortgage lenders, mortgage brokers, and loan officers to improve their customer retention.

This means if and when a past customer looks to refinance their home loan or purchase a new home, they might be notified if they pay for such services.

There are companies that can keep an eye on your data over time to see if you’ve applied for a home loan elsewhere, if your home equity has increased, or if your debt load has gone up.

The same goes for your credit score, which if it’s improved enough, may prompt a call or email from a lender or broker you worked with in the past.

While this in and of itself isn’t necessarily a bad thing (sure, data collection is getting a little aggressive), it’s how you react to the sales pitch if and when it comes your way.

Ultimately, if you receive an inbound call or email regarding a mortgage refinance, HELOC inquiry, or even a referral from a friend or family member, don’t stop there.

They are just one of the many individuals/companies you should contact and consider before finalizing your home loan decision.

What If You Receive a Mortgage Mailer?

  • Consider an inbound solicitation a starting point if you’re considering a refinance
  • Don’t simply call the individual/company back and call it a day because they can offer a low rate
  • There are hundreds of mortgage companies out there and competition is fierce
  • Your mortgage will be paid for decades so every little bit matters if you care about saving money

I get mortgage solicitations all the time – and they’re often from a broker, lender, or loan servicer I worked with in the past.

They’re certainly appealing, don’t me wrong. Who doesn’t want to save potentially hundreds a month for simply redoing their home loan, especially if it’s from a trusted source?

But why stop at that mailer? Why not use that as a stepping stone to reach out to other lenders and get additional pricing and offers, then make your decision?

When we’re talking about something as important as a mortgage, which you pay each month for decades, the price you pay matters.

And even a small difference of say an eighth of a percent can equate to thousands of dollars over the life of the loan term.

As noted, companies are getting smarter every day when it comes to customer retention. Unfortunately, a customer retained is likely to miss out on even bigger savings elsewhere.

Don’t simply take the path of least resistance. Put in the time and you should save money.

This is even more critical for low-credit score borrowers, as a wider range of mortgage rates are quoted for those with lower scores.

But all homeowners can benefit from multiple mortgage quotes, as pointed out in a survey from Freddie Mac.

Those who gather just one additional mortgage quote can save between $966 and $2,086 over the life of the home loan, while those who take the time to get 5+ can save nearly $3,000.

So while your old company may make it easy for you to refi, you might be better served looking someplace else.

Read more: Mortgage Rate Shopping: 10 Tips to Get a Better Deal

Lock in a lower rate.
About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for nearly 15 years.

Source: thetruthaboutmortgage.com