Is it weird to get a custom mortgage?

With Fed's decision to accelerate taper and leave rates unchanged for now will have borrowers who are still in-the-money with their current mortgages clamoring to get refinanced into a lower rate mortgage.?

More than a decade after the great depression, it is clear that American's are not tapping into their equity to squeeze out the last penny in their home. Instead, they have learned their lesson from the previous great depression or have become financially savvy by saving more or both. Either way, the trend is promising.?

So does it still make sense to refinance if you don't need to tap into your home equity? Does it still make sense to refinance, considering the closing cost involved?

Finding a lower interest rate than your current mortgage, or being able to lower your monthly payment, or being able to pay off the mortgage faster are the typical motivations for refinancing. Most understand the interest rate and maturity term are related/linked. So, typically, the interest rate on 15-year will be lower than on 20-year than on a 30-year mortgage, and so on. But the vast majority of mortgages originated are still 30-year mortgages because it benefits amortizing the payment over 30 years.?

Refinancing doesn't make sense only because the interest rate offered is lower than your existing mortgage.?

To ensure refinancing your existing mortgage puts you in a stronger financial position than before getting into a refinance transaction with the lender by either lowering interest rate, monthly payment, maturity, or all of them.?

A typical borrower relies on the Loan Officer to help them suggest what might be best for them. But without doing their homework and taking the time to understand the inside mechanics of interest rate, maturity, origination fees, closing costs, etc., it is easy to be blindsided by a rush to close on a mortgage that lowers the current monthly payment. Wondering how come lower interest rate and lower monthly payment is not necessarily financially beneficial for you? Let me try to explain with an example.?

Let's say the existing mortgage had an unpaid principal balance (the amount you are looking to refinance) is $400,000, and your current interest rate is 3.875% with a monthly payment of $1,900. Just knowing that the new loan offered is at 3.5% with a new monthly payment of $1,700 is NOT sufficient to determine if the refinancing makes sense. How come? You might ask why going from 3.875% to 3.5% or lowering monthly payment from $1,900 to $1,700 is not financially beneficial?

Because it depends on - how long have you been making payments on the existing mortgage / what is the remaining term on the current mortgage before it is paid off. One could lower their monthly payment by simply refinancing even if the interest rate was higher but still lower their monthly payment if they have paid a specific number of months (number of months depends on the loan amount and other parameters)?

So in the example above, it is possible that going from 3.875% to 3.5% or lowering monthly payment from $1,900 to $1,700 might not be in your best interest when you consider the closing cost and term that it extends your current mortgage. You would end up paying a lot higher in interest paid over the life of the loan. A careful side-by-side review of your existing mortgage with the new offer on an official Loan Estimate should help you determine if refinancing still makes sense.?

That brings me to the topic that I think is commonly misunderstood. There is still misconception in the vast majority of borrowers that mortgages have to be 10-years, 15-years, 20-years, or 30-years. But in fact, you can choose a 26-year term or anything between 10years and 30 years, whichever is the most financially beneficial to the borrower. It is especially true if you are refinancing your existing mortgage.?

So if you want to save time from doing the tedious work of reviewing the official Loan Estimate and understanding all the fees and terms involved, a quick, simple, yet effective tip is to ask the lender if they would match your current term. So if you have already been making monthly payments for ~4 years, then you can ask the lender if they could do a Fixed-rate Mortgage with 26-year terms, and chances are they would gladly do that for you. (most lenders offer this feature) Now, if the interest rate and monthly payment are still lower than your existing mortgage, it is most likely financially beneficial for you.?

So next time you are thinking to refinance, don't forget to ask the lender if they would customize your mortgage by allowing you to choose a non-standard term.?

Yatin Karnik Founder & CEO, Confer Inc.