Mortgage Refinance — for whom and when
We had a big wave of refinancing a few years ago. The interests rates were falling and most people could save a lot of money. The wave is behind us, but for those who still didn’t refi, they should consider doing so now.
In general there are two types of people interested in a mortgage refinance:
- Those who want to reduce their monthly payments.
- Those who want to take advantage of good rates to readjust their long-term financial planning.
In most cases, those in category 1 usually end up no better than they started out. Those in category 2 can usually do very well. Refinancing a mortgage is a manageable, yet non-trivial process. Long term you can save hundreds of thousands, but to achieve those savings you need to be prepared to pay a little more each month.
Pay a little more? I know it sounds counter-intuitive, but if you’re looking for the wisdom of the mob, you didn’t come to the right place! If you’re looking for cheapest, try ebay or zap. If you want to save hundreds of thousands, read on. Just understand that in many cases you might have to pay a few hundred shekels more a month in order to save a few thousand.
I’ve been using a vacation analogy lately to explain this. If you plan on visiting New York, you might want to try a decent hotel in Queens @$140 a night to avoid the cost of a decent Manhattan hotel @$430 a night, not including $70 taxes or breakfast. I’ve never stayed at either place and just to be clear, both choices are reasonable and rational. However, if you wanted to vacation in Riga, Latvia you could do this for around $20 a night, but why bother when you can stay in a luxury hotel for only $51, including breakfast. [For the record, I personally vacation in Eilat. While I know that it is overpriced, I thank God that I can holiday in the Land of redemption.]
In other words, when you are in an expensive place, it is normal to carefully budget, and cut corners where you can. If you go somewhere inexpensive, live it up! Right now, debt is inexpensive. Live it up! Get the best mortgage possible, because the difference between it and the cheapest is affordable. Just to be clear, the more expensive mortgages are far less costly in the long-term, but are require a higher monthly expenditure.
So who should be refinancing? If you meet these criteria, the chances are that you do:
- You took out your mortgage more than four years ago
- You have more than 10 years remaining on your mortgage
- You are unlikely to move soon
- You can afford to pay a few hundred shekels a month more (the more the better!)
If you meet this criteria, please call your bank, ask for a pay-off report
דו”ח יתרת תשלומים לסילוק משכנתא
and send it to me. I’ll review it and tell you what we can do for you. The banks usually send these via fax instead of email. If you don’t have an fax to mail number, use mine 15389349861, just be sure to write so I know that it is coming.
[If your report comes back with a huge mortgage penalty, don’t fear. Read this post about the capitalization fee (mortgage penalty).]