In this episode of "Loan Officer Training," we delve into the critical process of analyzing the benefits of real estate loan refinancing. Refinancing can offer significant advantages, but how do you determine if it’s the right move for your clients?
Join us as we break down the key factors to consider, from interest rate comparisons and loan terms to closing costs and long-term savings. Learn how to perform a detailed cost-benefit analysis, understand the impact on monthly payments, and evaluate the potential for cash-out options. We’ll also discuss scenarios where refinancing may not be beneficial and how to communicate these insights effectively to your clients.
Whether you're guiding homeowners through their first refinance or advising experienced investors, this episode equips you with the tools and knowledge to make informed recommendations and enhance your clients’ financial outcomes. Tune in and refine your expertise in real estate loan refinancing!
Join The Mortgage Calculator at https://themortgagecalculator.com/join
About The Mortgage Calculator:
The Mortgage Calculator is a licensed Mortgage Lender (NMLS #2377459) that specializes in using technology to enable borrowers to access Conventional, FHA, VA, and USDA Programs, as well as over 5,000 Non-QM mortgage loan programs using alternative income documentation!
Using The Mortgage Calculator proprietary technology, borrowers can instantly price and quote thousands of mortgage loan programs in just a few clicks. The Mortgage Calculator technology also enables borrowers to instantly complete a full loan application and upload documents to our AI powered software to get qualified in just minutes!
Our team of over 350 licensed Mortgage Loan Originators can assist our customers with Conventional, FHA, VA and USDA mortgages as well as access thousands of mortgage programs using Alternative Income Documentation su
Loan Officers for Unlimited Free Non-QM Leads & Trainings Join The Mortgage Calculator at https://themortgagecalculator.com/join
The Mortgage Calculator is a licensed Mortgage Lender (NMLS #2377459) that specializes in using technology to enable borrowers to access Conventional, FHA, VA, and USDA Programs, as well as thousands of Non-QM mortgage loan program variations using alternative income documentation!
Using The Mortgage Calculator proprietary technology, borrowers can instantly price and quote thousands of mortgage loan programs in just a few clicks. The Mortgage Calculator technology also enables borrowers to instantly complete a full loan application and upload documents to our AI powered software to get qualified in just minutes!
Our team of licensed Mortgage Loan Originators can assist our customers with Conventional, FHA, VA and USDA mortgages as
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Restream recording Jun 13, (00:00):
All right.
So welcome everyone.
My name is Kyle Hiersche.
I'm the COO of the MortgageCalculator joined here by our
president, Nick Hiersche, andour sales manager, Jose
Gonzalez.
We are a lender that specializesin non QM loans.
And what we do every Tuesday,Wednesday, and Thursday evening
at 7 p.
m.
Eastern is our loan officertraining series where we do a
different Loan officer trainingtopic.
(00:20):
And tonight, again, we're doingsome more basic stuff here,
which is how to properly analyzesome refinance benefits.
So Jose, let's go ahead and getinto.
Good evening, everybody.
Thank you for joining us fortonight's training.
Definitely with all of thevolatility.
(00:42):
That's going on in the market.
Uh, we're going back to some ofthese basic concepts, but the
most important concepts, right?
Especially when you're trying toadd value in this whole process,
usually the, uh, largestfinancial transaction that, uh,
your typical borrower will do intheir life.
And, uh, you have to be there toguide them as a loan consultant,
(01:06):
right?
We are not application takers atthe mortgage calculator.
So you definitely need to beable to explain properly the
benefits to a borrower of theirrefinance.
You know, what are theirobjectives?
So I'm not going to get ahead ofmyself here because we're going
to cover all All of thesebenefits in the presentation.
(01:30):
So let's get first a real basichere.
Why refinance?
What right?
What exactly is a refinance?
Well, refinancing is the processof taking out a new loan on a
property to either pay off anexisting loan, Which would be
your rate in turn refinance ortap into the equity of a free
(01:54):
and clear property, which wouldbe a cash out refinance.
A cash out refinance is alsogoing to be when you have your
property that you are paying offan existing loan and are
borrowing.
Above and beyond that amount,any amount above your existing
loan payoff and your closingcosts is the cash out portion.
(02:15):
Now there are written termrefinances that let you go up to
2 percent or 5, 000 withoutbeing considered a cash out.
As far as, uh, proceeds of therefinance now, what are the key
reasons to refinance a realestate loan?
Well, the 1st 1, it would belower the interest rate, right?
(02:37):
That's 1 of the obvious ones.
Reduce monthly payments, uh,access home equity there.
We're talking about just youwant money.
You want to go to the casino.
Hopefully not.
Right.
Hopefully you just want toaccess tap into the equity for
(02:57):
some, um, some things that youmay need and consolidate debt.
Usually that entails a higherinterest rate debt, less
favorable.
Loan term, right?
You want to extend the term,maybe on on that debt that
you're consolidating as well.
Lower your payment.
So a lot of different reasonswhy you're consolidating debt,
(03:20):
but most of these, except forthe access home equity part,
typically have to do withlowering the monthly outlay,
bettering the financial positionof the household.
So when does refinancing makesense?
(03:43):
That's the key.
And that's why you have to beaware and sensitive of many
different facets of thetransaction.
But the first and most importantone has to do with the timing.
Of the transaction, right?
We need to get inside the headof the borrower and find out
what their specific financialgoals are.
(04:06):
What are their circumstances?
Because refinancing makes sensewhen it aligns with the
borrower's specific financialgoals and circumstances, that's
one of the things to consider.
It's not because you need to getpaid as a loan officer.
You want to get your commissionsand all that.
It has to do with what theborrower needs.
(04:28):
Now, what are some of thescenarios under which
refinancing may make sense?
And some of these, you may seesome similarities to what I
mentioned in the first slide,right?
First slide, we're talkingabout, uh, lower interest rate,
reduce monthly payment, accesshome equity, consolidate debt.
And over here, now, some of thescenarios now when it may make
(04:50):
sense to refinance is interestrates have dropped.
But now remember you as the loanofficer are going to have to,
um, provide that cost benefitanalysis in the end to the
borrower, but interest rateshave dropped is definitely a
signal that it may, may, may bea good time to refinance
improved credit scores of theborrower they didn't refinance
(05:14):
before their score wasn't highenough for them to be able to
get what they really wanted toget.
Change in financial situation,right?
Either they, they may needmoney.
Kids may be going to theuniversity.
Uh, they, uh, somebody may bebeing hospitalized.
They may have lost a job, a lotof different changes in
financial situations that could,uh, Uh, be, uh, could make it
(05:38):
the right moment to refinance,uh, reducing loan term, right?
Going from a 30 year to a 20year or to a 15 year.
That usually tends to be, uh, anice goal, especially with
borrowers that may be a littlebit more mature.
Uh, looking to hopefully getthat house paid off there.
They're, they're already beyondthe access home equity part of
(06:00):
their life.
Now there, we want to reduce theloan term because maybe by the
time I get ready to retire, Idon't want to have, uh, to pay
principal and interest.
Still going to have to pay taxeson the property, reduce taxes,
hopefully with some discounts.
Still may have to pay insuranceunless you decide to go self
insured, but you definitely wantto save that principal and
interest.
And, uh, interest rates onconsumer credit has risen.
(06:23):
That's another scenario.
That's a, that's a recentscenario right now where you may
have a scenario, for example,where why would somebody want to
refinance at a 7 percentinterest rate, right?
Let's, let's start with some ofthese different points.
Well, what if their consumerdebt is now at 32%, 34, 36%,
right?
(06:43):
All you need to do is miss 1payment or be 1 times 30 on a
credit card and all the othercredit cards know that you
defaulted on a payment, eventhough, you know, you're making
the payment.
That's how they look at it.
Now, all of a sudden, interestrates rise and all the credit
cards because.
Written deep down in there inthe terms of those credit cards
(07:04):
is something to that effect.
If you start, uh, if yourcredit, if they see that your
credit is not as good as it wasbefore, and obviously miss, you
know, being late on a payment onanother card, they're going to
see that that could cause thecard to, uh, the interest rate
on the card to rise to thedefault rate.
Maximum allowable by law, andthat's really high rate.
So obviously 7 percent is a lotlower than 30%.
(07:29):
Uh, so there's definitely goingto be a cost benefit analysis in
this scenario.
If the customer was using theircredit card, cause they didn't
want to do this cash out thing.
They thought they could, theycould deal with it, but now they
realize, Oh, you know, creditcards are getting a little bit
hairy there, so.
Let me do the refinance andlet's get that 7 percent rate
(07:50):
because now you're also going tobe able to deduct the interest
rate on that mortgage interestthat you can't deduct on the
credit card.
So, you're looking at that,you're looking at reducing your
loan term, the loan amortizationalso is going to be better.
If you need money, you needmoney, right?
Change of financial condition.
So a lot of, a lot of reasons,but number five, there is one of
(08:11):
the ones that can definitely isdefinitely hitting home in this
current environment.
So don't think you're not addingvalue to a bar as they're going
to refinance because they mayhave a 5 percent rate or they
may have a 3 percent rate and,you know, but you may be helping
them out.
Maybe they can't get that secondmortgage.
Uh, he loan.
(08:32):
Or HELOC, because they may nothave enough equity or credit
score or whatever it may be,right, because the HELOCs and
HELONs do have a higherminimums, for example, than an
FHA or a conventional loan or aVA or USDA or even a lot of non
QM options.
So, again, you really have tolook deep, find out what their
(08:53):
specific financial goals andcircumstances are.
Because it's not just about therate.
You know, the more you find out,the more you can be a
consultant, the more you can addvalue, give good advice, and
hopefully seal the deal becauseyou will have empowered your
borrower to make that educateddecision.
This is not about being anapplication taker, production
(09:15):
line, uh, kind of attitude withthe, with the borrower.
This is about consulting them.
And, uh, explaining the, uh, thescenarios to them.
And that's where we're talkingabout now, analyzing the
benefits, right?
If we got lower interest rates,then yes, we have reduced
(09:36):
monthly payments.
If that's one of theirobjectives, more favorable loan
amortization, uh, which is in alot of long term savings.
What do I, what do I mean bymore favorable loan
amortization?
Well, if you look at anamortization table and you set
up.
Uh, two interest rates, right?
And you set up the amortizationtable, one at, let's say, uh, 5
(10:00):
percent or, uh, 360.
Let's talk rates for now.
One is at 7%, the other is at5%, or let's say one at 86%,
whatever it is.
You're going to see, uh, Thatthe one at the lower interest
rate is going to be paying moreprincipal and less interest.
So it's not just about analyzingthe total payment.
(10:21):
You know, you could have onepaying 700 and the other one
paying 750.
That's only a 50 difference.
But what are you advertising?
That's when that's the extradimension that you're adding
here to the analysis.
What are you advertising?
Oh, all right.
Uh, Mr.
Borrower at the higher interestrate, you're paying.
(10:44):
150 principle at the lowerinterest rate, you're paying 220
principle.
So there's a 70 benefit more toeach payment to amortize the
debt.
Then there is at the higherrate, even though the payment
may only be, let's say 50 lower,as an example, the overall
(11:05):
benefit is the 50.
Plus the better amortizationthat you're starting with.
And then with each payment atthe lower interest rate, the,
the, with each payment, there'sa change in principal paid goes
up a little and interest paidgoes down a little.
Well, if the interest rate islower, the principal amount goes
(11:26):
up higher, right?
Uh, more per payment than itdoes at the lower.
Amortized at the, at the higherinterest rate, excuse me.
So the, the benefit isincrementally faster at the
lower interest rate because ofthe better amortization.
So the amortization is verypowerful tool.
Uh, if you, you know, know howto.
(11:47):
Look at it and explain itproperly to the borrower.
And then definitely that's whenthey're going to the shorter
terms as well.
When you're going to the shorterinterest loan terms from 30
years to 20 or 15, then also thebreakdown of the amortization is
different.
The 15 year, Typically, it'sgoing to start almost 50 50 on
(12:08):
the principal and amortizationwithin the overall payment.
Obviously, it's a higher paymentbecause there's less payments of
the principal.
You're looking at, for example,180 payments versus 360
payments.
So, logically, the principalpayment is going to be higher,
but then the breakdown.
Is also much more favorable tothe buyer.
(12:29):
So that's really where you getthe big time savings that
consolidation, obviously whenthey're combining the higher
interest rate debts, like creditcards into one.
Lower interest rate loan.
You're going to have a lowerpayment just because of that.
And on top of that, remember,uh, you're looking at tax
deductible interest as well onmortgage interest, whether it's
(12:53):
a first mortgage, a second or athird mortgage, any interest
that's paid on your dwelling ona real estate.
Is tax deductible, not actuallyjust on your dwelling.
This is on other real estate aswell.
And we talked about the shorterloan term, and then we're
talking about home equity, homeequity access, which is great.
(13:17):
Now, one of the best thingsabout, uh, accessing your home
equity, let's say through aHELOC is really what I'm talking
about here is pay interest onlyon what you owe.
Uh, but also.
You're, you're looking ataccessing that home equity for
renovation of the property, uh,any property or the subject
(13:38):
property, uh, investment, right?
Buying other properties oranother investment opportunity
that may have come up or the oldfamily emergency, right?
Somebody got hospitalized andnow you've got to come up with
thousands of dollars in out ofpocket rather than face, uh, you
know, hardship.
(13:58):
So now you've explained, uh, allyou've analyzed the benefits.
The customers have told you,okay, Jose.
I'm ready to go.
I love the fact that I'm goingto be reducing my payments.
I'm going to be reducing myinterest expense.
I'm going to be amortizing more,uh, on my monthly amount towards
(14:19):
the principal.
So I'm going to pay, I'm goingto be building equity faster.
So if I go sell, decide to sellthe house in five or six or
seven years, I'm going to have alot more money, a lot more
equity built up because of myamortization.
Thank you, Jose.
But that's not, it's not over atthat point.
Now you got to make sure thatthis refinance goes all the way
(14:41):
through to fruition, to closing,because if anything should
happen throughout the refinanceprocess, unless it's a dire
emergency for the customer thatthey really need the money.
It's real easy for them to say,you know what, Jose, things
changed now.
It's not, um, I'm not benefitingas much from this as I thought
(15:02):
as I was, uh, lost my motivationfor it.
Please cancel the transaction.
So you don't want that tohappen.
So guiding the borrowers throughthe decision of refinancing,
right.
To make sure they're all in andeverything is set up is so
important.
So the communication.
With the borrower is key asalways as loan consultant, loan
(15:25):
consultants at the mortgagecalculator.
Uh, we want to have open,honest, clear communication,
transparency also.
Right.
Been talking about assessingtheir needs.
Why are they doing therefinance?
Make sure you understand thatfully.
You've analyzed all theiroptions, presented multiple
(15:45):
solutions.
Because you don't want to havemissed out and left money on the
table because you didn't presentone of the solutions that
somebody else did.
And then you may lose that dealthat way.
You want to highlight the costof the transaction, the fees,
the potential savings, you know,talking again about
(16:08):
amortization.
And you want to evaluate, reallyimportant here to evaluate the
risks.
What are the potential downsidessuch as prepayment penalties?
Make sure you explain thosewell, because those are actually
benefits.
If it's an investment propertyand they want a lower rate,
lower payment.
So, understand how prepaymentpenalties work, be able to
(16:29):
explain to them how much theywould have to pay if the
prepayment penalty was executeddue to some reason, so they
understand what they're gettinginto, explain everything about
the longer and shorter loanterms, and definitely talk
about, um, adjustable ratemortgages and the risks inherent
with adjustable rate mortgages,like negative amortization.
Most people forget, uh, that anadjustable rate mortgage has a
(16:51):
payment cap.
Right.
That payment cap means that'sthe payment limit.
That doesn't mean it's thepayment due limit.
That's just okay.
They can only raise your paymentX amount per year.
But if the interest rate wenthigher, the amount that you're
not paying is is added asnegative amortization to the
loan.
(17:11):
And besides the indexes, themargins are high and the indexes
on the short term right now area lot higher than on the long
term.
We have an inverted yield curveright now.
So, you know, your, your 2 yearrate is higher than your 10 year
rate.
For example, that's, that's whywe're talking about an inverted
(17:31):
yield curve.
So definitely guiding yourborrowers through the decision,
making sure the right product isselected.
It's key.
To ensuring that the borrowerstays in the process, because if
it's not the right productselected, if they felt that they
were forced into something thatnow they may get second
thoughts, all it's going tohappen in the end is you're
(17:53):
going to cancel the deal and youhave wasted a lot of time,
effort and money.
And resources.
So now definitely you want toprepare the borrower for the
process, add value, right?
You've already explainedeverything.
Well, you're the, you're theconsummate professional, but now
you want to make sure you addvalue so that your borrower
(18:16):
stays in the deal and closes.
So make sure you explainthoroughly the required
documents according to theguidelines of whatever program
may have been chosen.
If you're doing an agency loanoriginating agency, that's going
to be a lot simpler due tohomogeneous guidelines rather
than if it's non Q.
(18:37):
M.
and you're talking about, uh,having to use air D.
and a on a property.
That is a cash out.
Refine.
Uh, you know, that's a veryselect product.
Um, so you wanna un, you know,be able to understand that to
fully structure the dealproperly.
Definitely guide the borrowersthrough the application process,
(18:59):
including, believe it or not,e-sign of the loan disclosures,
I mean, it is not the first timesomebody's had to have, have a
Zoom meeting with a borrower towalk them through signing of the
disclosures.
You do not want to have a dealloss just because you're a
borrower.
Is tech challenged now?
(19:21):
The all important credit check.
Please make sure you discuss.
All you know, we we've had thetraining on, uh, um, credit
report review fundamentals,looking for opportunities for
credit simulation, improvementsof credits.
They won't be the first timethat a loan is short two points.
(19:42):
And now all of a sudden you'rehaving issues and the NLO never
brought up credit simulations atthe beginning of the process and
now all of a sudden they're hitwith some weird conditions and
they wish they had brought upthe credit simulation
opportunities because had theydone that now they wouldn't be
where they are looking to do acredit simulation and needing to
close in seven days.
Right to bump up the borrower'scredit a couple of points.
(20:04):
So again, discuss this with theborrower before the credit is
even pulled.
You want to make sure that youask the borrower about
everything or if the creditsalready been pulled.
You want to make sure you letthem know.
Don't open up any new accounts.
Don't do anything like that.
No new credit.
Don't call sign for anybody.
Um, explain the need for anappraisal and any obstacles that
(20:28):
may present themselves such asproperty condition and a reduced
valuation.
In other words, it's not the 1sttime that an appraisal comes
back and the house doesn't haveit's an FHA loan cash out refi
and the house doesn't havekitchen cabinets.
And it's missing the toilets andthe vanities and the showers are
halfway done.
(20:49):
And then we're like, you know,we asked the MLO when we were
reviewing the files, yourmanager.
Hey, didn't he, weren't youaware that this property, this
should have been a renovationloan.
I mean, it's okay.
We got FHA 203k renovationloans, but this should not have
been a regular FHA loan.
And they're like, well, yeah.
Now, when I asked the borrowerabout it, now that I know they
said that they They could usethe money from the cash out to
(21:12):
finish the repairs, right?
Because they don't know thatwe're the licensees.
We're the ones that have toexplain all of these details to
the borrowers, right?
We're, we're held one, one stepabove the borrowers because we
have licenses.
And that's why it is our job tobe the loan consultant.
So don't assume just because theborrower is not applying for a
renovation loan that the housemay not need.
(21:36):
A renovation loan.
So you want to discuss theselittle factors, which may not be
so little.
All of a sudden, propertycondition keeps you from
closing.
And now you got to go back tothe drawing board and regarding
reduced valuations, pull up,pull up some AVMs from
somewhere.
A lot of areas.
You can get an AVM prettyquickly.
(21:56):
Some places, even for free and,uh, make sure you go over that
with the borrower.
Don't discourage them from doingthe deal because in the end.
Okay.
We're not an appraiser.
Uh, you know, it, it, dependingwhat type of transaction it is,
depending how it's set up, theremay not be a need for any
secondary valuation method likean ABM or a CDA.
(22:20):
So don't discourage thetransaction, but just empower
them and explain to them.
And if they in turn want toreduce the loan amount a little
bit or do what they got to do,that's okay.
But again, you're going to bethe constant professional.
And then, uh, discuss with theborrowers what happens after the
application is submitted toensure that no issues arise,
right?
What we're talking about again,don't open any new credit.
(22:42):
Don't, don't spend all yourmoney.
Don't accept gifts in cash anddeposit them.
Don't make any large deposits,any of these things that could
throw a wrench into your deal.
But.
Remember though, at the mortgagecalculator, we do have options
for those non QM loans thatdon't have seasoning or sourcing
requirements on large deposits.
So just let you know that wehave solutions to all of those
(23:05):
issues.
So now, so now you got theapplication is already in, you
explain everything to them.
Now you're getting close, you'regetting close to a clear to
close.
Remember on this, on arefinance, they have three days.
If 3 days after the transactioncloses, if it's a primary
(23:27):
residence, 3 days after thetransaction closes.
to cancel the deal.
Investment, uh, not, but on theprimary, yes.
But even then at any part of thetransaction, even on the day of
the closing, at the closingtable, they can cancel on you.
You don't want that to happen.
So that's why we need to betransparent, right?
(23:47):
Don't be afraid to share theinformation with the borrowers
to empower them.
That's the key here.
Results in a, a, a seamlesstransition, uh, transaction
transitioning from process toclosing with no interruptions,
no hiccups, no, uh, peoplelooking up at you and saying,
(24:09):
what's this, right?
So again, first bullet pointthere, review and confirm the
terms of the new loan thatthey're about to close on and
ensure that the borrower'sobjectives are met.
And that the borrower iscomfortable with the terms of
the new loan.
It's what they expected, or ifit's not what they thought they
(24:29):
were getting in the beginning.
Everything was clearly explainedthroughout the process to them.
They're totally empowered andunderstand.
All they got to do is go to theclosing and sign.
That's what they're going totell you.
Okay, Jose, thank you.
Uh, explain to the borrowers howthe funding is going to work.
Discuss the timeline and thedisbursement of the funds.
(24:49):
Super important on the cashoutswhen they have a dire need,
especially for the funds due tosome time constraint.
Explain to them how theircurrent loan.
Is going to be paid off, whopays it off, what's the process
used to pay off, you know, andthe reason I say this is because
they're going to appreciate morethan anything, then, uh, working
(25:12):
with you.
And so that then they're goingto understand how the loan
closes, so they're going tounderstand nobody's going to
steal their money because it hashappened that.
Loans don't get paid off in theend, but obviously that's not
what we're looking at with the,uh, companies that we always use
for closing another benefit ofusing professionals and provide
(25:36):
ongoing support and assistance.
Through the closing and afterthe closing, don't just
disappear because then you'renot going to get any referrals.
You want to delight the borrowerwith your service exceed their
expectations and you willreceive many referrals and have
(25:56):
a sustainable.
MLO career guys.
No, I always like to mentionhaving a sustainable MLO career.
You don't want to burn yourselfout, uh, because you're, you
know, you don't enjoy whatyou're doing and you're going to
enjoy what you're doing whenyou're helping all of these
people reach their objectives,reach their goals and making
good money to boot.
(26:17):
So that's a win, win, winsituation for.
So I hope that you all followthese pointers here.
You can add value to yourrefinance transactions.
Uh, and have many closings everymonth.
(26:37):
All right.
Thank you.
Jose.
I don't see any questions here,but again, great stuff.
Back to the basics.
I'll give it a second here, butit doesn't look like we have any
questions.
So we'll go ahead and wrap it upthen.
Remember, we do this everyTuesday, Wednesday and Thursday
evening at 7 p.
m.
(26:57):
Eastern.
So, I hope everybody has a greatweekend and we will see you next
Tuesday, 7 p.
m.
for the next episode of the LoanOfficer Training Series with the
Mortgage Calculator.
All right.
So welcome everyone.
My name is Kyle Hiersche.
I'm the COO of the MortgageCalculator joined here by our
president, Nick Hiersche, andour sales manager, Jose
Gonzalez.
We are a lender that specializesin non QM loans.
And what we do every Tuesday,Wednesday, and Thursday evening
at 7 p.
m.
Eastern is our loan officertraining series where we do a
different Loan officer trainingtopic.
(00:20):
And tonight, again, we're doingsome more basic stuff here,
which is how to properly analyzesome refinance benefits.
So Jose, let's go ahead and getinto.
Good evening, everybody.
Thank you for joining us fortonight's training.
Definitely with all of thevolatility.
(00:42):
That's going on in the market.
Uh, we're going back to some ofthese basic concepts, but the
most important concepts, right?
Especially when you're trying toadd value in this whole process,
usually the, uh, largestfinancial transaction that, uh,
your typical borrower will do intheir life.
And, uh, you have to be there toguide them as a loan consultant,
(01:06):
right?
We are not application takers atthe mortgage calculator.
So you definitely need to beable to explain properly the
benefits to a borrower of theirrefinance.
You know, what are theirobjectives?
So I'm not going to get ahead ofmyself here because we're going
to cover all All of thesebenefits in the presentation.
(01:30):
So let's get first a real basichere.
Why refinance?
What right?
What exactly is a refinance?
Well, refinancing is the processof taking out a new loan on a
property to either pay off anexisting loan, Which would be
your rate in turn refinance ortap into the equity of a free
(01:54):
and clear property, which wouldbe a cash out refinance.
A cash out refinance is alsogoing to be when you have your
property that you are paying offan existing loan and are
borrowing.
Above and beyond that amount,any amount above your existing
loan payoff and your closingcosts is the cash out portion.
(02:15):
Now there are written termrefinances that let you go up to
2 percent or 5, 000 withoutbeing considered a cash out.
As far as, uh, proceeds of therefinance now, what are the key
reasons to refinance a realestate loan?
Well, the 1st 1, it would belower the interest rate, right?
(02:37):
That's 1 of the obvious ones.
Reduce monthly payments, uh,access home equity there.
We're talking about just youwant money.
You want to go to the casino.
Hopefully not.
Right.
Hopefully you just want toaccess tap into the equity for
(02:57):
some, um, some things that youmay need and consolidate debt.
Usually that entails a higherinterest rate debt, less
favorable.
Loan term, right?
You want to extend the term,maybe on on that debt that
you're consolidating as well.
Lower your payment.
So a lot of different reasonswhy you're consolidating debt,
(03:20):
but most of these, except forthe access home equity part,
typically have to do withlowering the monthly outlay,
bettering the financial positionof the household.
So when does refinancing makesense?
(03:43):
That's the key.
And that's why you have to beaware and sensitive of many
different facets of thetransaction.
But the first and most importantone has to do with the timing.
Of the transaction, right?
We need to get inside the headof the borrower and find out
what their specific financialgoals are.
(04:06):
What are their circumstances?
Because refinancing makes sensewhen it aligns with the
borrower's specific financialgoals and circumstances, that's
one of the things to consider.
It's not because you need to getpaid as a loan officer.
You want to get your commissionsand all that.
It has to do with what theborrower needs.
(04:28):
Now, what are some of thescenarios under which
refinancing may make sense?
And some of these, you may seesome similarities to what I
mentioned in the first slide,right?
First slide, we're talkingabout, uh, lower interest rate,
reduce monthly payment, accesshome equity, consolidate debt.
And over here, now, some of thescenarios now when it may make
(04:50):
sense to refinance is interestrates have dropped.
But now remember you as the loanofficer are going to have to,
um, provide that cost benefitanalysis in the end to the
borrower, but interest rateshave dropped is definitely a
signal that it may, may, may bea good time to refinance
improved credit scores of theborrower they didn't refinance
(05:14):
before their score wasn't highenough for them to be able to
get what they really wanted toget.
Change in financial situation,right?
Either they, they may needmoney.
Kids may be going to theuniversity.
Uh, they, uh, somebody may bebeing hospitalized.
They may have lost a job, a lotof different changes in
financial situations that could,uh, Uh, be, uh, could make it
(05:38):
the right moment to refinance,uh, reducing loan term, right?
Going from a 30 year to a 20year or to a 15 year.
That usually tends to be, uh, anice goal, especially with
borrowers that may be a littlebit more mature.
Uh, looking to hopefully getthat house paid off there.
They're, they're already beyondthe access home equity part of
(06:00):
their life.
Now there, we want to reduce theloan term because maybe by the
time I get ready to retire, Idon't want to have, uh, to pay
principal and interest.
Still going to have to pay taxeson the property, reduce taxes,
hopefully with some discounts.
Still may have to pay insuranceunless you decide to go self
insured, but you definitely wantto save that principal and
interest.
And, uh, interest rates onconsumer credit has risen.
(06:23):
That's another scenario.
That's a, that's a recentscenario right now where you may
have a scenario, for example,where why would somebody want to
refinance at a 7 percentinterest rate, right?
Let's, let's start with some ofthese different points.
Well, what if their consumerdebt is now at 32%, 34, 36%,
right?
(06:43):
All you need to do is miss 1payment or be 1 times 30 on a
credit card and all the othercredit cards know that you
defaulted on a payment, eventhough, you know, you're making
the payment.
That's how they look at it.
Now, all of a sudden, interestrates rise and all the credit
cards because.
Written deep down in there inthe terms of those credit cards
(07:04):
is something to that effect.
If you start, uh, if yourcredit, if they see that your
credit is not as good as it wasbefore, and obviously miss, you
know, being late on a payment onanother card, they're going to
see that that could cause thecard to, uh, the interest rate
on the card to rise to thedefault rate.
Maximum allowable by law, andthat's really high rate.
So obviously 7 percent is a lotlower than 30%.
(07:29):
Uh, so there's definitely goingto be a cost benefit analysis in
this scenario.
If the customer was using theircredit card, cause they didn't
want to do this cash out thing.
They thought they could, theycould deal with it, but now they
realize, Oh, you know, creditcards are getting a little bit
hairy there, so.
Let me do the refinance andlet's get that 7 percent rate
(07:50):
because now you're also going tobe able to deduct the interest
rate on that mortgage interestthat you can't deduct on the
credit card.
So, you're looking at that,you're looking at reducing your
loan term, the loan amortizationalso is going to be better.
If you need money, you needmoney, right?
Change of financial condition.
So a lot of, a lot of reasons,but number five, there is one of
(08:11):
the ones that can definitely isdefinitely hitting home in this
current environment.
So don't think you're not addingvalue to a bar as they're going
to refinance because they mayhave a 5 percent rate or they
may have a 3 percent rate and,you know, but you may be helping
them out.
Maybe they can't get that secondmortgage.
Uh, he loan.
(08:32):
Or HELOC, because they may nothave enough equity or credit
score or whatever it may be,right, because the HELOCs and
HELONs do have a higherminimums, for example, than an
FHA or a conventional loan or aVA or USDA or even a lot of non
QM options.
So, again, you really have tolook deep, find out what their
(08:53):
specific financial goals andcircumstances are.
Because it's not just about therate.
You know, the more you find out,the more you can be a
consultant, the more you can addvalue, give good advice, and
hopefully seal the deal becauseyou will have empowered your
borrower to make that educateddecision.
This is not about being anapplication taker, production
(09:15):
line, uh, kind of attitude withthe, with the borrower.
This is about consulting them.
And, uh, explaining the, uh, thescenarios to them.
And that's where we're talkingabout now, analyzing the
benefits, right?
If we got lower interest rates,then yes, we have reduced
(09:36):
monthly payments.
If that's one of theirobjectives, more favorable loan
amortization, uh, which is in alot of long term savings.
What do I, what do I mean bymore favorable loan
amortization?
Well, if you look at anamortization table and you set
up.
Uh, two interest rates, right?
And you set up the amortizationtable, one at, let's say, uh, 5
(10:00):
percent or, uh, 360.
Let's talk rates for now.
One is at 7%, the other is at5%, or let's say one at 86%,
whatever it is.
You're going to see, uh, Thatthe one at the lower interest
rate is going to be paying moreprincipal and less interest.
So it's not just about analyzingthe total payment.
(10:21):
You know, you could have onepaying 700 and the other one
paying 750.
That's only a 50 difference.
But what are you advertising?
That's when that's the extradimension that you're adding
here to the analysis.
What are you advertising?
Oh, all right.
Uh, Mr.
Borrower at the higher interestrate, you're paying.
(10:44):
150 principle at the lowerinterest rate, you're paying 220
principle.
So there's a 70 benefit more toeach payment to amortize the
debt.
Then there is at the higherrate, even though the payment
may only be, let's say 50 lower,as an example, the overall
(11:05):
benefit is the 50.
Plus the better amortizationthat you're starting with.
And then with each payment atthe lower interest rate, the,
the, with each payment, there'sa change in principal paid goes
up a little and interest paidgoes down a little.
Well, if the interest rate islower, the principal amount goes
(11:26):
up higher, right?
Uh, more per payment than itdoes at the lower.
Amortized at the, at the higherinterest rate, excuse me.
So the, the benefit isincrementally faster at the
lower interest rate because ofthe better amortization.
So the amortization is verypowerful tool.
Uh, if you, you know, know howto.
(11:47):
Look at it and explain itproperly to the borrower.
And then definitely that's whenthey're going to the shorter
terms as well.
When you're going to the shorterinterest loan terms from 30
years to 20 or 15, then also thebreakdown of the amortization is
different.
The 15 year, Typically, it'sgoing to start almost 50 50 on
(12:08):
the principal and amortizationwithin the overall payment.
Obviously, it's a higher paymentbecause there's less payments of
the principal.
You're looking at, for example,180 payments versus 360
payments.
So, logically, the principalpayment is going to be higher,
but then the breakdown.
Is also much more favorable tothe buyer.
(12:29):
So that's really where you getthe big time savings that
consolidation, obviously whenthey're combining the higher
interest rate debts, like creditcards into one.
Lower interest rate loan.
You're going to have a lowerpayment just because of that.
And on top of that, remember,uh, you're looking at tax
deductible interest as well onmortgage interest, whether it's
(12:53):
a first mortgage, a second or athird mortgage, any interest
that's paid on your dwelling ona real estate.
Is tax deductible, not actuallyjust on your dwelling.
This is on other real estate aswell.
And we talked about the shorterloan term, and then we're
talking about home equity, homeequity access, which is great.
(13:17):
Now, one of the best thingsabout, uh, accessing your home
equity, let's say through aHELOC is really what I'm talking
about here is pay interest onlyon what you owe.
Uh, but also.
You're, you're looking ataccessing that home equity for
renovation of the property, uh,any property or the subject
(13:38):
property, uh, investment, right?
Buying other properties oranother investment opportunity
that may have come up or the oldfamily emergency, right?
Somebody got hospitalized andnow you've got to come up with
thousands of dollars in out ofpocket rather than face, uh, you
know, hardship.
(13:58):
So now you've explained, uh, allyou've analyzed the benefits.
The customers have told you,okay, Jose.
I'm ready to go.
I love the fact that I'm goingto be reducing my payments.
I'm going to be reducing myinterest expense.
I'm going to be amortizing more,uh, on my monthly amount towards
(14:19):
the principal.
So I'm going to pay, I'm goingto be building equity faster.
So if I go sell, decide to sellthe house in five or six or
seven years, I'm going to have alot more money, a lot more
equity built up because of myamortization.
Thank you, Jose.
But that's not, it's not over atthat point.
Now you got to make sure thatthis refinance goes all the way
(14:41):
through to fruition, to closing,because if anything should
happen throughout the refinanceprocess, unless it's a dire
emergency for the customer thatthey really need the money.
It's real easy for them to say,you know what, Jose, things
changed now.
It's not, um, I'm not benefitingas much from this as I thought
(15:02):
as I was, uh, lost my motivationfor it.
Please cancel the transaction.
So you don't want that tohappen.
So guiding the borrowers throughthe decision of refinancing,
right.
To make sure they're all in andeverything is set up is so
important.
So the communication.
With the borrower is key asalways as loan consultant, loan
(15:25):
consultants at the mortgagecalculator.
Uh, we want to have open,honest, clear communication,
transparency also.
Right.
Been talking about assessingtheir needs.
Why are they doing therefinance?
Make sure you understand thatfully.
You've analyzed all theiroptions, presented multiple
(15:45):
solutions.
Because you don't want to havemissed out and left money on the
table because you didn't presentone of the solutions that
somebody else did.
And then you may lose that dealthat way.
You want to highlight the costof the transaction, the fees,
the potential savings, you know,talking again about
(16:08):
amortization.
And you want to evaluate, reallyimportant here to evaluate the
risks.
What are the potential downsidessuch as prepayment penalties?
Make sure you explain thosewell, because those are actually
benefits.
If it's an investment propertyand they want a lower rate,
lower payment.
So, understand how prepaymentpenalties work, be able to
(16:29):
explain to them how much theywould have to pay if the
prepayment penalty was executeddue to some reason, so they
understand what they're gettinginto, explain everything about
the longer and shorter loanterms, and definitely talk
about, um, adjustable ratemortgages and the risks inherent
with adjustable rate mortgages,like negative amortization.
Most people forget, uh, that anadjustable rate mortgage has a
(16:51):
payment cap.
Right.
That payment cap means that'sthe payment limit.
That doesn't mean it's thepayment due limit.
That's just okay.
They can only raise your paymentX amount per year.
But if the interest rate wenthigher, the amount that you're
not paying is is added asnegative amortization to the
loan.
(17:11):
And besides the indexes, themargins are high and the indexes
on the short term right now area lot higher than on the long
term.
We have an inverted yield curveright now.
So, you know, your, your 2 yearrate is higher than your 10 year
rate.
For example, that's, that's whywe're talking about an inverted
(17:31):
yield curve.
So definitely guiding yourborrowers through the decision,
making sure the right product isselected.
It's key.
To ensuring that the borrowerstays in the process, because if
it's not the right productselected, if they felt that they
were forced into something thatnow they may get second
thoughts, all it's going tohappen in the end is you're
(17:53):
going to cancel the deal and youhave wasted a lot of time,
effort and money.
And resources.
So now definitely you want toprepare the borrower for the
process, add value, right?
You've already explainedeverything.
Well, you're the, you're theconsummate professional, but now
you want to make sure you addvalue so that your borrower
(18:16):
stays in the deal and closes.
So make sure you explainthoroughly the required
documents according to theguidelines of whatever program
may have been chosen.
If you're doing an agency loanoriginating agency, that's going
to be a lot simpler due tohomogeneous guidelines rather
than if it's non Q.
(18:37):
M.
and you're talking about, uh,having to use air D.
and a on a property.
That is a cash out.
Refine.
Uh, you know, that's a veryselect product.
Um, so you wanna un, you know,be able to understand that to
fully structure the dealproperly.
Definitely guide the borrowersthrough the application process,
(18:59):
including, believe it or not,e-sign of the loan disclosures,
I mean, it is not the first timesomebody's had to have, have a
Zoom meeting with a borrower towalk them through signing of the
disclosures.
You do not want to have a dealloss just because you're a
borrower.
Is tech challenged now?
(19:21):
The all important credit check.
Please make sure you discuss.
All you know, we we've had thetraining on, uh, um, credit
report review fundamentals,looking for opportunities for
credit simulation, improvementsof credits.
They won't be the first timethat a loan is short two points.
(19:42):
And now all of a sudden you'rehaving issues and the NLO never
brought up credit simulations atthe beginning of the process and
now all of a sudden they're hitwith some weird conditions and
they wish they had brought upthe credit simulation
opportunities because had theydone that now they wouldn't be
where they are looking to do acredit simulation and needing to
close in seven days.
Right to bump up the borrower'scredit a couple of points.
(20:04):
So again, discuss this with theborrower before the credit is
even pulled.
You want to make sure that youask the borrower about
everything or if the creditsalready been pulled.
You want to make sure you letthem know.
Don't open up any new accounts.
Don't do anything like that.
No new credit.
Don't call sign for anybody.
Um, explain the need for anappraisal and any obstacles that
(20:28):
may present themselves such asproperty condition and a reduced
valuation.
In other words, it's not the 1sttime that an appraisal comes
back and the house doesn't haveit's an FHA loan cash out refi
and the house doesn't havekitchen cabinets.
And it's missing the toilets andthe vanities and the showers are
halfway done.
(20:49):
And then we're like, you know,we asked the MLO when we were
reviewing the files, yourmanager.
Hey, didn't he, weren't youaware that this property, this
should have been a renovationloan.
I mean, it's okay.
We got FHA 203k renovationloans, but this should not have
been a regular FHA loan.
And they're like, well, yeah.
Now, when I asked the borrowerabout it, now that I know they
said that they They could usethe money from the cash out to
(21:12):
finish the repairs, right?
Because they don't know thatwe're the licensees.
We're the ones that have toexplain all of these details to
the borrowers, right?
We're, we're held one, one stepabove the borrowers because we
have licenses.
And that's why it is our job tobe the loan consultant.
So don't assume just because theborrower is not applying for a
renovation loan that the housemay not need.
(21:36):
A renovation loan.
So you want to discuss theselittle factors, which may not be
so little.
All of a sudden, propertycondition keeps you from
closing.
And now you got to go back tothe drawing board and regarding
reduced valuations, pull up,pull up some AVMs from
somewhere.
A lot of areas.
You can get an AVM prettyquickly.
(21:56):
Some places, even for free and,uh, make sure you go over that
with the borrower.
Don't discourage them from doingthe deal because in the end.
Okay.
We're not an appraiser.
Uh, you know, it, it, dependingwhat type of transaction it is,
depending how it's set up, theremay not be a need for any
secondary valuation method likean ABM or a CDA.
(22:20):
So don't discourage thetransaction, but just empower
them and explain to them.
And if they in turn want toreduce the loan amount a little
bit or do what they got to do,that's okay.
But again, you're going to bethe constant professional.
And then, uh, discuss with theborrowers what happens after the
application is submitted toensure that no issues arise,
right?
What we're talking about again,don't open any new credit.
(22:42):
Don't, don't spend all yourmoney.
Don't accept gifts in cash anddeposit them.
Don't make any large deposits,any of these things that could
throw a wrench into your deal.
But.
Remember though, at the mortgagecalculator, we do have options
for those non QM loans thatdon't have seasoning or sourcing
requirements on large deposits.
So just let you know that wehave solutions to all of those
(23:05):
issues.
So now, so now you got theapplication is already in, you
explain everything to them.
Now you're getting close, you'regetting close to a clear to
close.
Remember on this, on arefinance, they have three days.
If 3 days after the transactioncloses, if it's a primary
(23:27):
residence, 3 days after thetransaction closes.
to cancel the deal.
Investment, uh, not, but on theprimary, yes.
But even then at any part of thetransaction, even on the day of
the closing, at the closingtable, they can cancel on you.
You don't want that to happen.
So that's why we need to betransparent, right?
(23:47):
Don't be afraid to share theinformation with the borrowers
to empower them.
That's the key here.
Results in a, a, a seamlesstransition, uh, transaction
transitioning from process toclosing with no interruptions,
no hiccups, no, uh, peoplelooking up at you and saying,
(24:09):
what's this, right?
So again, first bullet pointthere, review and confirm the
terms of the new loan thatthey're about to close on and
ensure that the borrower'sobjectives are met.
And that the borrower iscomfortable with the terms of
the new loan.
It's what they expected, or ifit's not what they thought they
(24:29):
were getting in the beginning.
Everything was clearly explainedthroughout the process to them.
They're totally empowered andunderstand.
All they got to do is go to theclosing and sign.
That's what they're going totell you.
Okay, Jose, thank you.
Uh, explain to the borrowers howthe funding is going to work.
Discuss the timeline and thedisbursement of the funds.
(24:49):
Super important on the cashoutswhen they have a dire need,
especially for the funds due tosome time constraint.
Explain to them how theircurrent loan.
Is going to be paid off, whopays it off, what's the process
used to pay off, you know, andthe reason I say this is because
they're going to appreciate morethan anything, then, uh, working
(25:12):
with you.
And so that then they're goingto understand how the loan
closes, so they're going tounderstand nobody's going to
steal their money because it hashappened that.
Loans don't get paid off in theend, but obviously that's not
what we're looking at with the,uh, companies that we always use
for closing another benefit ofusing professionals and provide
(25:36):
ongoing support and assistance.
Through the closing and afterthe closing, don't just
disappear because then you'renot going to get any referrals.
You want to delight the borrowerwith your service exceed their
expectations and you willreceive many referrals and have
(25:56):
a sustainable.
MLO career guys.
No, I always like to mentionhaving a sustainable MLO career.
You don't want to burn yourselfout, uh, because you're, you
know, you don't enjoy whatyou're doing and you're going to
enjoy what you're doing whenyou're helping all of these
people reach their objectives,reach their goals and making
good money to boot.
(26:17):
So that's a win, win, winsituation for.
So I hope that you all followthese pointers here.
You can add value to yourrefinance transactions.
Uh, and have many closings everymonth.
(26:37):
All right.
Thank you.
Jose.
I don't see any questions here,but again, great stuff.
Back to the basics.
I'll give it a second here, butit doesn't look like we have any
questions.
So we'll go ahead and wrap it upthen.
Remember, we do this everyTuesday, Wednesday and Thursday
evening at 7 p.
m.
(26:57):
Eastern.
So, I hope everybody has a greatweekend and we will see you next
Tuesday, 7 p.
m.
for the next episode of the LoanOfficer Training Series with the
Mortgage Calculator.
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