In part one of this series, we discussed some of the new realities of mortgage refinancing in an interview with Quicken Loans Vice President and mortgage industry veteran, Stephen Luigi Piazza. The discussion continues here in part two, with more tips and trends that homeowners should know about if they want to refinance their mortgage today.
Consider “deleveraging” as part of your refinancing. Usually when customers refinance a mortgage, they choose to roll their closing costs into the total balance of the loan so that they don’t have to pay the closing costs out of pocket; instead, that additional $2,000 or $3,000 (or more) just gets added to the amount of mortgage debt they owe. However, according to Piazza, 33 percent of Quicken Loans’ refinance customers are bringing cash to closing, rather than adding their closing costs to the balance of the mortgage.
“We’re seeing a lot of people who, even if they owe more on the house than the appraised value, are choosing to pay down more equity because interest rates are such a bargain,” said Piazza. “This is a huge cultural shift from where we were just a few years ago.
“Five years ago during the housing boom, people were doing cash-out refinances and using their homes as ATMs, going on vacation and buying boats and cars with their home equity,” said Piazza. “Today, people are looking to relieve the burden of debt. They’re re-prioritizing their payments.
“I think the biggest reason the U.S. economy hasn’t grown faster is because people still aren’t spending like they used to; instead, they’re paying down debt. Statistics show people are paying more on their mortgage and putting more down toward their mortgage.”
Challenges with your home appraisal? Ask for a “property inspection waiver.” Home values continue to be a challenge for many people who would like to refinance. If your home has dropped in value during the past few years, it may be difficult to get approved for a refinance. However, even if your home is not likely to appraise for a sufficient value, you might be eligible for a property inspection waiver (PIW).
“Many people qualify for what’s called a ‘property inspection waiver,’ where Fannie Mae and Freddie Mac have determined the value of the home based on their data, and may not require an appraisal,” said Piazza. “This occurs for approximately 20 to 25 percent of refinance applications.”
Don’t wait! If you want to refinance, start today. If you have steady income, good credit, and a decent amount of home equity, the time has never been better to refinance your mortgage at an all-time low interest rate. But don’t delay – the process of refinancing can take awhile to complete, and it’s best to act before interest rates go up again.
“You can’t wait for rates to go any lower,” said Piazza. “We’re already seeing 1950s-levels of interest rates; at some point the market can’t go any lower because of capacity issues. And rates tend to go up a lot faster before they come down again.”
Piazza is optimistic that the households refinancing their mortgages today will eventually be able to help lead the U.S. economy into a stronger recovery.
“I truly believe that today’s refinance trend is going to be a boost to the overall economy,” he said. “There will be a ‘wealth effect’ for these consumers who are refinancing. When people start having a lower monthly mortgage payment, whether it’s $100 or $150 or $200 or more, that adds up to some significant flexibility in families’ budgets that will ultimately help the broader economy.”
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