Refinancing is the safety net to dropping rates on a fixed mortgage

Loan officer: Alex Greer. Property type: Single-family residence in San Jose. Appraisal value: $1.1 million. Loan type: Streamline FHA 30-year fixed.

Loan amount: $715,000. Rate: 3.5 percent. Backstory: If you received a mortgage in the past two years, you are one of the 5.9 million borrowers who are in a position to drop their mortgage rate by 0.75%.

Since the beginning of the year and especially in recent weeks, mortgage rates are falling unexpectedly and sharply, and that means millions of borrowers can now benefit from refinancing their loans. Per borrower, the savings is about $271 per month. All of this is according to data from Black Knight, a mortgage analytics company.

In this scenario, the borrower is the same client I helped in the Just Approved article from February of this year, titled “Borrower qualifies using boarder rent from own business.” I gave this particular borrower a Federal Housing Administration loan at the end 2018, which set them up perfectly for a streamline FHA refinance. The streamline FHA refinance needs no income and no appraisal making it one of the easiest transaction in the industry.

When I approached the borrower about the monthly savings on a streamline refinance, the borrower had one simple question in response: What if rates keep dropping?

Often times I get this question from borrowers when rates are dropping and I always turn to one of my favorite bits of advice from Warren Buffett about mortgages. Buffett believes that a fixed rate mortgage is the best financial instrument in the world, because if you’re right and rates go up you are protected, but if you’re wrong and rates go down, you just refinance. It’s a one-way renegotiation. It is an incredibly attractive instrument for the homeowner and you’ve got a one-way bet.

With this bit of advice from one of the most successful investors in the world, the borrower was more than convinced to lock in their savings on this one-way bet and I was able to fund their loan in 15 days.

Alex Greer, The Mortgage Outlet,

408-352-5147, agreer@themortgageoutlet.com.