4 Worthy Reasons to Refinance the Home
Have your customers considered refinancing to pay off vacation expenses or their children’s tuition? Has their financial situation recently changed? Maybe they’re looking to renovate their home or invest? Here are some tips and considerations to share with your customers who need help refinancing a mortgage.
Reason 1: Pay-off debts, home renovation, create wealth
If your customer answers yes to any of the following, it might be time to think about refinancing:
- They want to pay off debts quicker and cheaper by consolidating them
- Their financial situation has changed
- They plan to renovate soon
- They want to use the equity in their home for a wealth creation strategy
- They want to use the equity to purchase an investment property
Reason 2: Improved Credit
If your customer has improved their credit score, it might be time to consider refinancing to get them a better mortgage refinance rate. To do this:
- Pull a copy of your customer’s credit report before beginning the refinancing process (TransUnion or Equifax)
- Then, work with your customer to clear up any mistakes on their credit report to put their best foot forward in the qualification process
For customers who have mortgages with private lenders, beacon scores as low as 500 are eligible for lower-rate, alternative mortgages.
Related: Know The 5 Cs of Credit to Accelerate a Submission
Reason 3: Need more income to increase household cash flow
If your customer requires more monthly income, it might be time to consider refinancing. Perhaps your BFS customer has less monthly income due to an economic downturn or COVID-19 pandemic, or their spouse lost their job. Alternatively, their debt load may have increased because of a major life event. Whatever the reason, the need for increased monthly cash flow may exist.
One option is to lengthen their amortization*. While doing this means they’ll be paying their mortgage longer, it can make the difference in meeting their immediate monthly cash needs. Ideally, this would be a temporary solution to handle short-term financial hardships backed with a plan for your customer to shorten the amortization upon renewal (to avoid prepayment charges and fees) once they’re back on their feet.
Reason 4: Shorten a mortgage term
If your customer wants to know how to shorten their mortgage term, it might be time to think about refinancing. If your customer is in a higher-rate mortgage, you can help them maximize their savings by opting for a new loan with a shorter term which could save them thousands of dollars over the life of the loan. Things to consider:
- Refinancing typically involves prepayment charges which will lower the savings
- Charges vary from lender to lender
- Prepayment charges should always be factored into the calculations of how much refinancing might save, as should any fees
In any case, your customer has options. Whatever their reason for refinancing a mortgage, you can help them make a responsible and informed decision. To discuss any refinance deals you may have, contact your local BDM.