Dec
04

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As I was preparing for work Tuesday morning, NBC's The Today Show had a segment with Barbara Corcoran, a "real estate expert," about refinancing. Being a loan officer, I stared, waiting for Ms. Corcoran would dispense some good advice about the many opportunities available for refinancing. While some of his advice was accurate, made a number of points allocated in the segment of three minutes and a half, they were so erroneous and misleading I had to respond.

The video can be found on the TODAY Show website. I recommend seeing it for the first time.

I suppose that point to receive any financial advice in a segment of three minutes and a half is not a good idea. Moreover, Ms. Corcoran sold her real estate business in 2001 seventy million dollars. While I respect her success, she is no longer involved in an industry that is vastly different and their experience was that of a real estate agent / Seller, not a mortgage professional. Fortunately, the segment of the audience asked to contact a mortgage professional for more personalized advice in depth. I know she meant well, but I have a real problem with the following tips for Ms. Corcoran:

  • 80% of the value can "Normally funded"
  • Although the statement is true, it seemed to imply that if your mortgage is over 80% of the value of the home (usually known as LTV or loan-to-value), you can not refinance. Nothing could be further from the truth. In fact, there are government sponsored and supported programs that allows owners to refinance up to 125% of the value of homes. Having more than 80% does not automatically exclude anyone from refinancing.

  • 720 FICO for the best rate
  • Once again, the statement is mostly true, except that the best rates are for those who have a credit score + 760. In fact, rates may be different at 760, 740, 720, 700, 680 … You get the idea. However, mortgage interest rates are determined by a number of factors, as LTV, credit score, your home state, the overall debt profile, and others.

  • Ask for a period equal to that remaining on your existing mortgage or "you get ripped off in the rate of interest."
  • You Do not "cheated" if you get a new mortgage 30 years. In fact, a new mortgage 30 years is likely that the best way to ensure the lowest monthly payment. Get a new mortgage equal to the remaining term of its suitable in some cases. Ask your loan officer to show the differences in payment of various terms and programs.

  • Pre-payment penalties …. not get one and not refinance if you have one.
  • This is a really terrible, mostly because it can cost a lot of savings. If you currently have a prepayment penalty, refinancing now in a low savings rate may offer benefits that outweigh the penalty. If you wait for the pre-payment penalty to expire, interest rates will likely be high. Ms. Corcoran made a good point about beak-even analysis and a prepayment penalty should be part of that. If someone offers you a new loan with a penalty advance payment, RUN! Prepayment penalties are almost extinct, as part of the world of high-risk mortgages is no longer in existence. This advice would have been useful in 2005, but it is misleading and irrelevant in 2010.

  • No closing costs, no points. Lenders bury costs in the instrument.
  • The implication is that no closing costs / no points loan is a bad thing. Not true. A customer choosing a no closing costs and no loan commercial items, these costs for a higher interest rate. It's that simple. Once again, have a mortgage professional show that the difference a traditional mortgage and closing cost no points and no loan.

  • They take 90 days to refinance.
  • False. In general, refinancing to take 45 days. I've heard horror stories from customers when they use a traditional bank pick-and-mortar when loans have taken six months. Maybe it's different in Manhattan, but for the rest of us, there is no excuse for more than 60 days in the worst case.

  • PMI climbing 1.75% in April.
  • This is misleading and incomplete. PMI is Private Mortgage Insurance. 1.75% Ms. Corcoran refers is the FHA Mortgage Insurance Premium or MIP. HUD has proposed raising the price to 2.25% this year. MIP is typically financed into the loan. FHA insured mortgages require monthly insurance (MI) of either.50% or.55%, but is usually much lower than PMI. PMI is needed if you have less than 20% of the shares and a conventional mortgage. PMI rates vary depending on several factors and is usually paid every month as part of your payment monthly. Again, ask your loan officer to show the differences in payment.

What is comes down to a mortgage professional can help you determine if refinancing is your best interest. Sometimes, refinancing is not the best choice for you at this time. Do not make the decision based on audio clips a television program. Make a mortgage professional to sit down with you and examine your current financial situation. It will not cost a penny and can save you thousands dollars.

View the TODAY show refinancing segment.

Damon Daniels
Mortgage Loan Officer Richmond, VA

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