This week’s highlights:
- Brian explains why the lowest rate isn’t always the best.
- Brian stumps David with some Geodesic dome home trivia.
- Brian highlights the importance of bulking up your down payments and how to do it with a gift.
The lowest rate isn’t always the best
Another record low mortgage rate means we’re taking another look at tough refinance decisions. In this weeks example, Brian explains why the lowest rate isn’t always the best option and puts the record low rates into perspective with a little bit of math and some come sense consideration.
Now is the rate low enough?
People always ask: Is the rate low enough for me to benefit from refinancing?
The answer from our refinance experts is a resounding “it depends on your loan balance.”
This week, a long time, 21-years, Accunet client reached out to Brian to ask that very question, here are the details:
- Mortgage originated in August of 2019 at 3.875% interest
- Refinanced in April of 2020 to 3.25% with an appraisal waiver and $0 in loan costs and $0 cash to closing.
After taking a look at the number Brian proposed 2-options.
Option A: Lowest Rate with Closing Cost
Brian’s first offer provided the client with lowest available rate of 2.75% and included an appraisal waiver, however, to get that rate, the closing costs would have been $2000.
Now, for most folks, the closing costs would be rolled into the loan, it’s not coming out of pocket; out of sight out of mind. Choosing this option would save save $72 per month in payments, but it comes with one big asterisk:
It would take 20-years to recoup the $2000 in closing costs from option A!
Option B: Low rate with zero closing costs
In this situation, there’s a better scenario: take a slightly interest rate, in this case 2.875% with $0 loan costs.
And that’s just what they did, lowering the monthly payments by $64 and avoiding the additional loan costs all together.
Make the decision to refinance easier with Accunet mortgage and our team of refinance experts—click here to get started.
Strange collateral: geodesic dome home refinancing
Brian, our trivia-master has the facts, especially where geodesic domes are concerned. One fact stands out, there aren’t going to be any comparable’s for an appraisal and when it comes to refinancing, that’s gonna be a problem.
In this story Brian demonstrates how low rates alone don’t mean that refinancing always makes dollars or sense.
The all-mighty appraisal waiver
It’s fair to say, geodesic domes never really caught on with the home construction crowd. These buildings are unique, and that can really cause problems for the appraisers, because unique means no comparisons home sales.
Brians client, happens to have one such home and has a loan that originated back in 2012 with $108,000 balance. Mortgage rates are certainly better now than they were 8-years ago, so refinancing should be a no-brainer, right? Not necessarily.
We need an appraisal waiver, but we didn’t get it.
Impact on loan costs
Without the appraisal waiver, we’d still be able to refinance the loan, and after crunching the numbers, the savings look good: $144 per month.
That savings comes at a price of $4000 in loan costs. That means most of the savings came from stretching the loan from 22 years back to 30, not from the lower rate.
So in this case, the client wisely decided to sit still.
Learn more about the rules of refinance with Accunet’s refi rules of thumb.
Bulking up your down payment with a gift
One of the best gifts you can give, especially to first-time home buyers, is the gift of money for a down-payment. This is especially true when the supply of homes for sale is as low as it is, currently.
If you’re moving money around in the post-Covid world, there are rules you need to know to avoid the dreaded gift tax:
- Person A can give person B $15,000 in any given calendar year without reporting it to the IRS.
- It’s a one-to-one rule, so there are many ways to give more than 15,000.
- The gift tax kicks in at a staggering, $11,580,000 life-time maximum.
- All you need to do is keep track of it!
Buying your first home? Start here so you know what to expect from the process!