Yes, mortgage interest rates are higher than where they were 3-4 years ago. But Orion’s brokers know that has not stopped refinances, and in fact a third of all loan applications are for refis. There are two basic types of refinances: “rate and term” and “cash out.” In 2020 and 2021 “rate and term” refinances were popular, but now things have changed. What’s going on out there? Refinancing can lower your client’s overall monthly debt payments (both mortgage and credit cards) and reduce the total amount of interest that your client will pay on their home and other debts. Before jumping on the "refi" bandwagon to secure a new loan for your client’s home, you should educate them on the pros and cons, as there are some situations when refinancing might not be worth it.

So, what's the biggest benefit of refinancing today? A lower interest rate than the 25-30 percent people are paying on their credit card debt. With rates this low (inthe 6’s or 7’s for a 30-year fixed-rate mortgage), it's no wonder that refinancing is popular. You'll just have to take factors into consideration, showing your client how much it costs to refinance, and how long it will take to recoup the costs. If the savings will outweigh the costs, scoring a low interest rate is a great reason to refinance.

Depending on your client’s financial situation, refinancing to adjust the length of their mortgage and in effect, monthly payments, could offer significant benefits over any existing credit card debt despite current mortgage rates being higher than a few years ago. Just like paying off credit card debt in one year versus five years, shortening the loan term means your client will pay less total interest on the mortgage.

On the other end of the spectrum, if your client is having trouble making payments and is looking for a way to reduce their monthly payments, refinancing could help with that, too. You can help them go from a 15-year mortgage, for example, to a 30-year term and thereby lower the amount that needs to be paid per month. The other big perk is your client can lock in a fixed-rate loan for security purposes. Now is a great time to let go of the uncertainty of an ARM in favor of a loan with a fixed rate that will never change unless they refinance it later.

Borrowers refinancing will have to pay closing costs, which most view in their minds as the amount it costs to refinance their home. Closing costs can add up to 3 to 6 percent of the outstanding principal of your client’s loan, and include application fees, loan origination fees, and appraisal fees, among other things. You should calculate your client’s savings from refinancing as they will usually outweigh these closing costs, then they’re in the clear. Just make sure to do your due diligence and help them consider their options wisely.

Secondly, if your client moves in a few months, or even a year after refinancing, the costs of refinancing may be greater than their total savings. One rule of thumb is that if they’re not going to recapture the closing costs within two years, it's not worth it to refinance. The final pitfall is actually getting a lender to give your client a loan. This could make for a tougher refinancing process than you imagined. If their credit score is lower now than when they initially took out their mortgage, they may have to pay a higher interest rate, which may defeat the whole purpose of refinancing.

Once again adding value, a broker can help compare the amount of a loan request to the value of the home to see if the loan-to-value (LTV) ratio falls within lending guidelines and verify your client’s income. Brokers know that borrowers must have the ability to repay their loan, in addition to seeing benefits from refinancing!

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