July 29, 2019
Our brokers know exactly where rates are as we wrap up July and head into August. And they know that a drop in the interest rates can potentially save a homeowner money by refinancing their existing home loans and securing a lower rate. But Orion’s AEs remind brokers to tell their clients that before they spend the time applying for a mortgage refinance, be sure they check their balance sheet and credit first. Applying for a refinance with Orion, or any lender, is similar to obtaining a mortgage to buy a home: We will consider your client’s credit score, debt-to-income ratio, and employment history when evaluating the application. Your client’s interest rate reflects their financial situation and banks tend to reward low-risk customers with better rates.
Homeowners who have improved their credit score since obtaining their original mortgage should see if refinancing makes sense for them. For every 20-point increase in credit scores, the interest rate can drop about 0.125 percent. For folks who are hoping to lock in a better rate but are not currently financially ready to do so, create a financial game plan now for a better position down the road. This includes paying down debt and saving money for an emergency fund (so that credit cards are not the go-to in a pinch).
Be sure to check Orion’s rates. Falling rates might seem like a money windfall if your client has a higher interest rate than what's available today, but make sure refinancing bolsters their bottom line. Many other lenders charge expensive lender fees that can put borrowers in the red if they decide to refinance and the savings don't outweigh the expense. Generally, brokers look for a drop in the rates of 0.5 to 1 percent (depending on the monthly savings and the closing costs) to justify doing a refinance.
Refinancing also makes sense if your client has private mortgage insurance, or PMI, and the house value has increased so that there is equity of at least 20 percent. Refinancing into a lower rate not only shaves off interest costs but also knocks out monthly PMI payments, which are typically 0.5 to 1 percent of the total loan on a yearly basis.
Orion’s brokers help many borrowers who want to reduce their terms and go from a 30-year fixed-rate mortgage to a 15-year loan. They might be able to chop off an additional 0.5 percent from the top since 15-year loans usually have lower rates. That might also mean larger monthly payments, but overall less interest paid over the life of the loan. Orion offers many adjustable-rate mortgage programs so holders can also profit from dropping rates; the timing might be right to lock via a fixed-rate mortgage as rates continue to hover around the high 3-percent mark.
Finally, our AEs report brokers seeing clients hoping to tap their equity while reducing their interest rate and who can take advantage of cash-out refinances. These are low-interest loans that allow homeowners to borrow against their equity by replacing their existing mortgage with a new loan for a higher amount and receiving the balance in cash. These can be useful for people who want to make home improvements as the interest is tax-deductible.