Mortgage banker advises customer not to refinance legacy mortgage

Mortgage banker: Harry Sessa

Home value: $300,000

Loan amount: $60,000

Loan type: Conventional refinance mortgage

Background: Harry Sessa got a call from a potential borrower referred by an attorney with whom he had worked in the past. The customer was seeking to refinance her current high rate mortgage.

She was not particularly concerned about the payments nor was she having any financial difficulty, which may have required a lower payment. Her primary concern was she had a high legacy interest rate and she felt that since rates were starting to trickle upward, she should refinance her mortgage at a lower rate.

Sessa gets calls like this quite often and sometimes has to deep dig a little bit deeper to find out more about the terms of the mortgage in place to provide beneficial advice to his clients. Sessa has been in the mortgage/real estate finance business for three decades, so there aren’t many situations he reviews that haven’t come up in the past.

In this particular situation, there was only nine years left on the mortgage. Amortization schedules essentially work in favor of the lenders who take disproportionate share of the interest over the first part of the mortgage. This elderly client had clearly paid the bulk of the interest due on the mortgage before reaching out to Sessa.

Therefore, the rate was not as important as she thought. For every payment she was making currently, the majority of the payment was being directly applied toward the principle.

Even though a new 10-year fixed rate was significantly lower than her legacy higher 30-year mortgage, she would have to pay considerable closing costs in order to refinance at the lower rate.

Sessa advised her to stay put as it was not in her best interest to refinance. She had spoken to two other loan officers prior to reaching out to Sessa. Both advised her to refinance the mortgage so she was delighted with the honest advice Sessa provided.

He saved her several thousand dollars in closing fees. The closing fees essentially eliminated the benefit of a new 10-year lower rate loan, which would also have had higher payment due to the shorter term versus her current loan.

The moral of this particular story is when re-financing, it’s not always about lowering the rate! If there is no true necessity to lower your payment, the amount of time left on the current mortgage can often be the most important factor.