Home ownership comes with substantial monetary commitments. For those who are new home buyers, the expenses can largely add up. The process may be a slightly confusing one for your clients, so helping them decide if they would rather refinance an existing mortgage or sell and move into a new house.
Here is the right way to help real estate clients decide between buying and refinancing.
Understanding the common reasons for moving or refinancing
- Growing family
- Kids moving out of the house
- Taking advantage of the current state of the housing market
- Obtain a new and lower mortgage interest rate.
What is refinancing?
It’s common to be stuck at a cross roads when it comes to deciding to stay in the home and refinance or to move to a smaller or larger place. When you refinance a loan, you get the opportunity to decrease your interest rate which will help you receive a shortened term for the mortgage. If the cost of refinancing counteracts the savings, refinancing is likely not the right move.
Questions to ask your clients when deciding to move or refinance:
- How old is your mortgage for prepayment?
If refinancing their mortgage would add extra years to the length of the mortgage, they are better off selling and buying a new mortgage as the extra years would counteract the savings. This is a discussion that you should have with your clients and assure that they have a better understanding of their options.
- Does your mortgage have a prepayment penalty?
Some mortgages enforce a penalty policy if the amount is paid off before it’s due. If refinancing the mortgage allows them to complete the terms of the agreement early, they will be hit with a penalty.
- If you stay, how long would you plan on staying for?
Refinancing is no a wise decision of your client plans on moving within the next there years. Typically the payment reduction comes over a time of several years so if they are selling before these benefits come into effect, refinancing is likely not a viable option.
- Do you have a good credit score?
Good credit is important to qualify for a lower interest rate. Typically your clients will see a great reduction in cost the better their credit. Sometimes, circumstances may cause a client’s credit to drop since they first took out their mortgage loan. If this is the case, you may want to advise them that repairing credit is a necessary step prior to refinancing.
Explaining the Pros and Cons of Refinancing
If your client is on the fence, you may want to point out the many pros and cons of refinancing.
Pros of Refinancing
- Reduced interest rate
- Adjustable rate mortgage can be switched to a fixed rate
- You can often cash out your equity
Cons of Refinancing
- There is no guarantee you’ll qualify
- There’s a cost for refinancing
- Your appraisal may be lower than you though
Settling time aside to educate and evaluate your clients will help them reach a solution that will save money and prove to be beneficial over the long run.