We’re in the midst of a refinance market, but are you taking advantage of those market conditions?
As interest rates continuously drop, there’s a greater volume of past loans that are now eligible for refinancing, even those that closed just a year ago.
A refi boom presents the perfect opportunity to get in touch with past borrowers to see if they’re interested in refinancing their mortgage to a more favorable rate or loan structure. Even if your borrower doesn’t move forward with a refi, they will still have had another touch point from you, keeping you recent in their memory and potentially more top-of-mind when they need their next mortgage.
In this post, we’ll discuss refi market conditions, types of refis to know about, and how you can approach borrowers to talk about refinancing.
Refinance Market Conditions
How did we come to be in a refinance market? That’s all thanks to today’s mortgage rates which, depending on the product you’re looking at, are a full percentage point below where they were last year. For example, today, 30-year fixed-rate mortgages are 3.7% compared to 4.7% a year ago.
What this means is those who purchased with a higher rate – even just a year ago – might be looking to refinance. There may also be plenty of borrowers – particularly first-time homebuyers – who may not realize that rates have dropped and that a refi could be advantageous.
The job market and economy are still strong, likely meaning that borrowers are still in a favorable financial situation to manage refinancing their mortgages.
Types of Refis
There are a couple of types of refinance models to know about so you can help your borrower make the best decision for them.
Some reasons a borrower might want to refi include lowering their interest rate (thereby lowering their monthly payment), changing their loan term, or changing their loan product (ex. Converting from ARM to FRM).
Rate and Term or Limited Cash-Out Refinance
This is the most common type of refinance model you’ll deal with.
With a rate and term refi, the rate and/or the term can change on the loan. It’s a simple restructure that allows borrowers to easily take advantage of lower rates.
In addition to the money needed to pay off the loan and closing costs, a borrower may receive up to $2,000 cash in hand. Be sure to check your borrower’s loan balance in case they’re able to drop their MI.
Cash-out refinances are typically defined as those that cause the new loan balance to exceed the original by 5% or more. They’re commonly used to extract equity from a home to make improvements to the home, to consolidate debt, or put toward other financial needs.
With a cash-out refi, a borrower may change their rate and/or term.
How to Work the Refinance Market
Need a reason to get in touch with a past borrower? A refi could very well be that reason.
As we mentioned, borrowers might not be aware that mortgage rates have dropped or that they’re eligible for a refinance. Reaching out to offer that opportunity creates one more touch point with a customer well after the original loan closed.
You don’t have to do a large outreach to be successful – comb through your records to see who has a rate that’s 1 percentage point or above current rates. Once you’ve identified a list of people, give them a call or send them and email to explain why you’re getting in touch.
When you reach out, instead of saying “I think you need a refi,” ask questions of your borrower such as:
- How much longer are planning on staying in your home?
- What are your financial goals? Are you in a position where changing the loan structure could help you pay off your mortgage faster?
- Are you in a similar situation to when you purchased (ex. credit score relatively the same, no new financial obligations)?
When you focus on asking questions and listening to a borrowers’ financial goals and situation, you can build a better relationship with them. Backing these questions up with how the market is favorable for refis and the options they have (ex. finance the closing fees into the mortgage) makes for a stronger case.
With market conditions as they are, there’s no better time to reach out to past borrowers to learn if they’re interested in a refinance.
As you speak to your borrowers, understand their current financial situation and what their goals are. If they’re looking to take advantage of a lower rate, a rate and term refi would probably be best for them. If they want to remodel soon and have built up a good amount of equity in their home, a cash-out refi would be the best option.
Serving as that advisor to your borrowers and having many options available to them creates a great customer experience that will keep borrowers coming back to you.