How_to_get_the_best_mortgage_rate_possible_and_one_big_mistake
00:00:00.000 | Hello, everybody.
00:00:00.840 | It's Sam from Financial Samurai.
00:00:02.520 | And in this episode, I want to talk
00:00:04.020 | about getting the best mortgage interest rate possible.
00:00:07.000 | Right now, everybody should be trying to refinance.
00:00:09.260 | If you haven't refinanced in a year or two,
00:00:11.840 | now is the time because the 10-year bond yield is at 1.5%
00:00:15.360 | or even less.
00:00:17.040 | All around the world, rates are going down.
00:00:19.920 | Some places, like in Denmark, have negative interest rates.
00:00:23.480 | So that's been a boon for consumers and borrowers.
00:00:27.200 | Now, to get the best mortgage interest rate possible,
00:00:29.400 | it's all about relationship pricing.
00:00:32.040 | What do I mean by relationship pricing?
00:00:34.000 | Well, it's about bringing new assets to a lender
00:00:38.160 | so they can give you a better rate than the market.
00:00:42.040 | Usually, the tiers are $250,000, $500,000, and $1 million.
00:00:47.280 | So in other words, if you bring $250,000 over in new assets
00:00:51.640 | to a new lender, you will get one rate.
00:00:55.760 | And then if you bring in $500,000,
00:00:57.240 | you get an even lower rate.
00:00:58.920 | And $1 million, you'll get an even lower rate.
00:01:00.800 | So you get bigger credits, in other words.
00:01:03.360 | So why do banks do that?
00:01:04.480 | Well, it's obvious.
00:01:05.280 | They're trying to drum up more business from new customers.
00:01:09.280 | Really, the perfect customer is one
00:01:11.400 | that opens multiple types of accounts with a bank.
00:01:14.720 | It's not just checking and savings.
00:01:16.520 | It's checking savings, mortgage, personal loans, credit cards,
00:01:21.020 | and so forth.
00:01:22.000 | And then hopefully, the relationship
00:01:23.880 | is good and nice and sticky, as they like to say.
00:01:26.960 | And then you refer other people to the bank.
00:01:28.840 | And they become lifelong customers and so forth.
00:01:33.000 | So what happened with me was that I've
00:01:35.480 | had a 19-year relationship with Citi Bank.
00:01:38.560 | I have multiple accounts open.
00:01:40.160 | I've referred multiple, multiple people to the bank.
00:01:44.480 | So I thought, our relationship is pretty good.
00:01:46.920 | I'm a Citi, quote, "gold" customer.
00:01:49.920 | And so one week, they said, hey, why don't you
00:01:53.520 | refinance with us?
00:01:54.400 | Well, I was looking and seeing what the best rates were.
00:01:56.720 | At the time, it was 3% for a 10/1 arm,
00:02:00.040 | which I thought was OK.
00:02:01.320 | I was refinancing a 2.5% five-year arm that
00:02:04.600 | was coming due in August 2019.
00:02:09.120 | And 3%, it's OK, but I wanted that magical 2 handle, right?
00:02:12.900 | Something like 2.875%.
00:02:15.580 | And so I just let them know, look, that 3% is good,
00:02:19.800 | but I'm hoping for 2.875%.
00:02:22.040 | And so the loan officer told me, well,
00:02:25.160 | just lock in 3% with us this week,
00:02:28.080 | and we're going to do some special pricing, promotional
00:02:31.800 | pricing next week.
00:02:33.520 | And we're going to be able to get you 2.875%.
00:02:37.120 | So given that I had been working with them for a long, long time,
00:02:40.120 | I had no reason not to believe them.
00:02:44.320 | So I decided to lock 3%, OK, and then wait a week later.
00:02:48.560 | And a week later came, and they said, sorry,
00:02:52.000 | we can't do 2.875%.
00:02:54.920 | And I was like, what do you mean, sorry?
00:02:56.720 | That's what you told me.
00:02:58.120 | And of course, he didn't say it in writing, in an email.
00:03:01.960 | And he said, look, I talked to my manager,
00:03:04.000 | and I just couldn't do it.
00:03:05.600 | And so that really, really put a bitter taste in my mouth.
00:03:09.160 | That was like a bait and switch, like come in here,
00:03:12.720 | look around, see if you like anything,
00:03:15.520 | and we'll take care of you.
00:03:18.320 | Don't worry about it.
00:03:19.240 | You know those car advertisements
00:03:20.800 | where there's a too-good-to-be-true ad where
00:03:23.840 | it's like $199 for a very fancy car that should be more like
00:03:28.680 | $600 a month or whatever.
00:03:31.320 | And you get there, and you realize, oh, it's
00:03:33.400 | already been sold, because in fine print it says,
00:03:35.480 | well, there's only one available at this price.
00:03:38.000 | But come on in, sucker.
00:03:40.800 | So I really felt like a sucker.
00:03:43.160 | So not one to reward broken promises,
00:03:46.600 | I decided to cancel the mortgage refinance.
00:03:50.360 | And it wasn't just canceling a week or two weeks
00:03:53.680 | after I realized I couldn't get 2.875%.
00:03:57.600 | I decided to go through the stringent process of getting
00:04:00.620 | all the documents they needed, talk to the manager
00:04:05.280 | and the loan officer multiple times,
00:04:07.360 | because I'm a glutton, glutton for punishment.
00:04:10.560 | And I decided to cancel about 7 to 10 days
00:04:14.540 | before it was about to close.
00:04:16.520 | I'd been going through this process for already two months.
00:04:20.560 | And I got to admit, part of me wanted
00:04:22.920 | to go through this process because I'm
00:04:24.440 | a glutton for punishment, but also
00:04:26.120 | because I wanted to see if I could learn something
00:04:28.480 | new in this latest mortgage refinance process.
00:04:32.960 | Oh, and they also said, look, there's no cancellation fee.
00:04:35.760 | So I was going for a free ride here,
00:04:38.000 | and I'm always looking to learn.
00:04:39.440 | So why not?
00:04:41.200 | Why not go through the process, cancel?
00:04:44.160 | Because I still had a couple months left
00:04:46.680 | before my 5-1 arm was to reset in August.
00:04:51.280 | Not one to reward broken promises,
00:04:53.960 | I decided to hunt elsewhere.
00:04:56.080 | And I found a better deal with Wells Fargo, which
00:04:58.080 | offered me 2.875% for a 7-1 arm with no refinance fees,
00:05:04.080 | plus a $2,000 credit.
00:05:06.680 | So the old mortgage refinance was a 10-1 arm,
00:05:09.480 | so slightly longer.
00:05:10.760 | And that's good, but I wasn't planning
00:05:12.340 | on holding it for more than five to seven years anyway.
00:05:15.560 | But it was at a higher rate, 0.125%, right, at 3%.
00:05:19.840 | And I had to pay $1,500 to refinance.
00:05:23.240 | So Wells Fargo seemed like a pretty good deal.
00:05:26.720 | A little bit lower rate, and I had this credit.
00:05:29.240 | That's like a $3,500 savings.
00:05:31.680 | So I decided, you know what?
00:05:33.080 | I'm going to go with you guys.
00:05:34.480 | And to get that rate, I would have
00:05:36.280 | to transfer $750,000 in new assets over to the bank.
00:05:41.120 | Thankfully, I did have that amount,
00:05:43.380 | because I have this old, slow-moving portfolio full
00:05:47.460 | of municipal bonds and some stocks
00:05:49.660 | that I plan on never trading and just holding for next 10
00:05:53.000 | to 20 years.
00:05:54.420 | And because I wasn't going to trade it,
00:05:56.320 | it didn't really matter whether I held the portfolio at Citibank
00:05:59.620 | or with Wells Fargo or whomever.
00:06:01.940 | And so this was my opportunity to get a better rate.
00:06:05.260 | But before I agreed with Wells Fargo,
00:06:08.700 | I gave Citibank one last chance.
00:06:10.500 | I said, hey, guys, I've got this great offer with a better
00:06:14.220 | rate and better terms.
00:06:15.860 | Can you match it?
00:06:16.740 | Because after all, you said you were going
00:06:18.500 | to give me 2.875% anyway.
00:06:20.900 | Just do the right thing.
00:06:23.860 | I talked back and forth and everything,
00:06:25.620 | and I was even willing to accept 2.875%, the match rate,
00:06:30.780 | and pay their $1,500 in fees instead of getting a $2,000
00:06:34.500 | credit just to keep things simple.
00:06:37.140 | Because you know what?
00:06:38.040 | It is a pain in the butt to move assets
00:06:40.660 | and to go with a new relationship.
00:06:42.060 | You're taking a risk.
00:06:43.620 | So I thought surely Citibank would agree,
00:06:45.360 | because I had a written offer and everything.
00:06:47.520 | I sent over the email, and it was just clear as day.
00:06:51.420 | I had been a great customer since 2001.
00:06:54.060 | Multiple accounts open, multiple referrals.
00:06:57.060 | Surely they would say, yes, I will honor our verbal promise.
00:07:02.340 | However, they still said no.
00:07:04.980 | So you know what?
00:07:06.420 | You just got to move with your feet
00:07:09.300 | and just take your assets elsewhere.
00:07:12.020 | I talked to the Wells Fargo guy, and I said, OK, I'm in.
00:07:15.140 | Please don't let me down.
00:07:16.220 | And he said two months should be more than enough time
00:07:18.540 | to get the refinance squared away
00:07:20.460 | so that I'd be paying the lower 2.875% rate come August 1st
00:07:25.340 | instead of my new reset rate of 4.5%.
00:07:30.020 | And I believed him.
00:07:31.640 | And that's where things went wrong again.
00:07:34.820 | I'm now in my third month of refinancing.
00:07:37.660 | I can see the end, but it is definitely not
00:07:40.220 | two months where 50% beyond what he said would happen.
00:07:46.180 | So what happened?
00:07:46.980 | Well, life got in the way, I guess.
00:07:49.940 | Well, interest rates really started
00:07:51.580 | to continue going down after I locked with Wells Fargo.
00:07:55.700 | And so that created a huge rush of mortgage refinancing.
00:07:59.580 | Mortgage refinancing is up 50% year over year in July,
00:08:02.860 | and it's probably going to be a similar amount in August.
00:08:05.420 | So that's created a huge backlog for the underwriters.
00:08:08.780 | And I don't know whether they're just giving me excuses or not.
00:08:13.060 | Because when there's more work to be done,
00:08:14.780 | I just work harder to get it done and reach that deadline.
00:08:17.900 | Because when I make a promise, I do everything possible
00:08:21.900 | to fulfill that promise.
00:08:24.060 | So once again, what I realize is that there's
00:08:26.380 | a lot of bait and switching, or maybe
00:08:28.180 | that's too harsh of a phrase.
00:08:30.660 | There's a lot of overpromising and underdelivering
00:08:33.940 | to win a new client's business.
00:08:37.220 | So I need you guys to realize that the rate they say
00:08:41.060 | might not be the rate that you end up with,
00:08:43.900 | or the timing they guide won't be the timing that you'll
00:08:49.300 | end up with.
00:08:50.540 | I would bake on three to four months
00:08:53.300 | to successfully refinance a mortgage.
00:08:55.540 | Long gone are the days where you can refinance a mortgage
00:08:58.260 | within 45 days.
00:08:59.980 | After the financial crisis, things
00:09:01.540 | have gotten a lot more stringent.
00:09:02.980 | And as rates have come down, down, down, more and more
00:09:05.820 | people are wising up to try to take
00:09:07.380 | advantage of these lower rates by refinancing their mortgage.
00:09:10.820 | I've calculated that each day past August 1st,
00:09:13.740 | my mortgage refinance does not close,
00:09:16.180 | is costing me an unanticipated $33.56 in extra interest.
00:09:22.580 | Because I'm now paying the new 4.5% rate instead of the new 2.75
00:09:28.140 | or 2.875% rate.
00:09:30.460 | So over a 30-day period, that's an extra $1,005
00:09:34.500 | in mortgage interest expense.
00:09:36.260 | I did not calculate when I was trying
00:09:38.100 | to figure out between Citibank and Wells Fargo.
00:09:41.220 | So this is something you guys really
00:09:42.980 | need to put your loan officer's feet to the fire and say,
00:09:46.340 | hey, what do you think is the realistic timing
00:09:50.660 | of the mortgage refinance?
00:09:53.580 | When he says one month, don't believe him or her.
00:09:56.700 | If he says one or two months, I still
00:09:59.300 | wouldn't believe him or her.
00:10:01.060 | Three to four months is really the realistic option right now
00:10:04.700 | because the banks are indeed flooded.
00:10:07.580 | And if you refinance sooner than three or four months,
00:10:09.780 | then great, you're going to be winning.
00:10:11.940 | And if you don't, you've got to make sure you're not
00:10:14.580 | paying the rate lock extension.
00:10:17.060 | Make sure the bank is paying that rate lock extension.
00:10:19.660 | It's not your fault if they're dragging their feet.
00:10:22.100 | And they should realize this, but make
00:10:23.700 | sure they don't drag their feet to try
00:10:25.340 | to win more business for their bank
00:10:27.620 | while also sticking you with a rate lock extension fee.
00:10:30.460 | Then that would be really, really bad,
00:10:32.620 | especially if you're two months, two and a half months into it.
00:10:35.540 | Can you imagine?
00:10:36.940 | This has happened to multiple readers of Financial Samurai
00:10:40.380 | over the years because I've been writing about mortgage refinance
00:10:42.940 | since 2009.
00:10:44.820 | And there are a lot of straggling banks out there.
00:10:49.220 | Their main objective is to corral as many of you guys
00:10:51.660 | as possible.
00:10:53.020 | And you know what?
00:10:54.100 | If you guys take longer than possible,
00:10:56.180 | well, they're going to operate at their own pace.
00:10:59.020 | So folks, the lesson here is to do the math
00:11:02.540 | and run worst case scenarios where your mortgage refinance
00:11:05.940 | will take maybe four months to refinance.
00:11:09.040 | And then calculate that extra interest payment
00:11:12.860 | that you would have to pay because of this delay.
00:11:16.300 | For those with 30-year fixed mortgages,
00:11:17.980 | it shouldn't matter as much how long the refinance takes
00:11:20.740 | because your mortgage rate isn't resetting.
00:11:23.260 | But to save money, you should still refinance and push
00:11:25.580 | to have a quicker close.
00:11:27.340 | Paying a 30-year fixed rate mortgage
00:11:29.940 | has proven to be a suboptimal choice
00:11:32.420 | as interest rates have come down since the late 1980s.
00:11:35.780 | And this is a topic, whole nother topic,
00:11:38.540 | 30-year fixed or ARM.
00:11:40.460 | But I am an ARM believer because I
00:11:42.900 | believe interest rates are going to go down or stay low
00:11:45.740 | for the rest of our lifetimes.
00:11:47.820 | If you have an ARM, your ideal scenario
00:11:51.180 | is to refinance into another ARM one week
00:11:54.900 | before your existing ARM is set to expire.
00:11:58.420 | Then you avoid the new higher reset rate, which usually
00:12:02.180 | is at max 2% higher than your existing ARM.
00:12:05.860 | So hopefully you guys got a lot out of this podcast.
00:12:08.460 | It truly is a frustrating experience for me to refinance.
00:12:12.220 | And I fear that it's going to be a little bit frustrating
00:12:14.700 | experience for you as well.
00:12:16.140 | Getting all those documents and everything
00:12:18.500 | is really a painful, painful process.
00:12:21.740 | And my refinance has taken so long
00:12:24.100 | that I've had to resend multiple documents because they expired.
00:12:27.860 | So I hereby solemnly swear never to refinance a mortgage again
00:12:32.180 | after this one is done.
00:12:33.860 | I'm either going to pay cash for a new property
00:12:37.500 | or just let things ride and not buy something new.
00:12:41.380 | Because at my age and my stage in life,
00:12:44.100 | I just don't have time for this.
00:12:45.660 | But I hope you guys do, because saving money
00:12:47.740 | is always a worthwhile endeavor.
00:12:50.060 | Thanks so much, everyone.
00:12:51.100 | And if you enjoyed this podcast, I'd
00:12:52.660 | love to receive a positive review.