Why Do People Refinance?

Think about this for a minute.Why do people get mortgages? As far as I can tell, every answer can fit into one of three categories:

1) Refinance; 2) Consolidate/Cash out ; 3) Purchase of a new home.

For a purchase, a mortgage is pretty much a necessity, so we wont even talk about that one. But the other two are more of the issue here.

Actually, #2 is just an offspring of #1, so you can make an argument to lump them together, right? So, lets break down the Refinance category. The reasons for refinancing are to lower the rates, right? Now, if you just agree with the last sentence, we have a LOT of work to do for you, but there is hope. Just break it down, why do people want lower rates? All together now, TO GET A LOWER PAYMENT! If you dont believe me, ask yourself this, if the rate was so good the last time your borrower refinanced, why are they refinancing again now? To get the lower rate? Umm, Ill let you stew on that one on your own. Im not trying to convince you about anything. Im in a sense, trying to challenge you.

Now, when people need to consolidate, what are they doing? (this is an easy one). They are trying to lower their overall monthly financial outgo. What about the cash out refis you ask? Thats a good question also. The reasons for cash out are: 1) consolidate (see above) and 2) life improvement (home improvement, investment portfolio improvement)

OK, so the people that get cash out for home improvement usually ask two questions. The first is What rate can I get? and the 2nd is Whats my payment gonna be? The first question is just a reflex question to make themselves seem like they know what theyre talking about, but the real question is the 2nd one.

Dont believe me still? No problem. Ask yourself this, ever have someone ask for $50K cash out and change their mind to get $60K because the rate is so good? Im sure it may have happened to someone in the past, but its so unusual, you can call it a White Elephant, true?

I can hear it now, I have a wealthy client that can pay off his house at anytime but chooses to get a mortgage because of the lower rates, its cheap money for them. Of course its cheap money, the payments are lower as well and they are maximizing their cash flow. Once again, lower payments come into play.

Just something to think about.

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