The workshop was hosted by Dr. Jim Taylor, vice chairman of Harrison Group, a market research firm for Fortune 100 companies. Everything he said that day was incredibly useful. Sometimes these workshops are full of fluff. This one was full of relevant data.

Below are a few slides that resonated with me today when reviewing the full set of Harrison research again. All but the last two have broad applicability; last two are on real estate.

Note that some of these slides introduce concepts and questions that are answered as part of Harrison’s day-long curriculum. Also note that I’m not some paid endorser. I’m posting these without permission from Harrison, so I want to be clear just how valuable I found their full program.

If you’re looking to understand affluent customers, contact the Harrison Group to learn more.

First, it says a no-cost refi is a product. False. A no-cost refi is a pricing structure. A 30yr fixed or a 5yr ARM or other loan programs are products. If you’re a consumer inquiring about no-cost refis, ask your lender to see written terms on a no-cost refi and a zero-point refi so you can compare the two. The latter has closing costs without points. A third pricing structure would be closing costs plus points to buy your rate down further (point 4 below explains how you do the math).

Second, it says closing costs on a $200,000 refi are $4,000 to $6,000. Misleading. Closing costs on a zero-point $200,000 refi will be about $3600 or less with any reputable lender. I say misleading because closing costs can rise if the borrower is paying points to buy their rate down. But there’s no discussion of this in the post (I cover it in points 3 and 4 below).

Third, it says there’s “always a cost” to no-cost refis then offers scare tactics but no primer on evaluating costs. In the mortgage industry, higher rates mean lower costs, so lenders can offer a higher rate in exchange for crediting all closing costs to borrower. How much higher depends on mortgage bond trading any given day, because rates change in realtime as these bonds trade. Right now, a no-cost refi will have a rate that’s .125% to .25% higher than a normal-cost (zero point) loan.

Fourth, it says that you should only consider a refi if you “plan to stay in the home for a minimum of three years, and can lower your interest rate by half to three quarters of a percentage point.” Incredibly misleading because there’s no hard rule for every client. All loan decisions must be made on expected time horizon in the home, how long the existing loan has been in place, and total cost savings (interest rate AND closing fees).

If a borrower does a no-cost refi to save even .125%, there is zero breakeven time and the loan amount hasn’t increased, so it’s pure interest cost savings for the consumer the day it closes.

If a borrower is paying refi closing costs (with or without points) to lower their rate, it will take anywhere from six months to four years for the interest savings to repay the fees. Everything from that point forward is pure benefit. So the consumer must tell the lender how long they expect to be in the home, then the lender will work the breakeven math to determine whether a no-cost, cost, or cost-plus-points refi works best. Or maybe the math and borrower’s time horizon reveals they’re ok in their existing loan.

About The Author: The post was written by Vera Gibbons, a journalist and financial analyst (bio below). Vera, I haven’t seen your other work, but please understand that a piece like this adds to consumer confusion about mortgages. If you need to vet your ideas with a mortgage pro, I’d be happy to help. And if it’s not me, I hope you find other sources to help educate your readers.
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Reference:
-The Cost of ‘No-Cost’ Refis: Zillow/Vera Gibbons
-Vera Gibbons bio
-Refi Roadmap: A Locked Rate Isn’t A Closed Loan

I’m linking below to the latest in a series I’ve been doing on Mortgage News Daily to help people understand the loan process and rate markets. ‘How To Shop For A Mortgage’ is a primer on how rates are derived and how to get the best terms. Also linking to my previous piece which details the loan process in terms that won’t put you to sleep. Head on over and take a look.
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My Latest For Mortgage News Daily:
-How To Shop For A Mortgage
-Refi Roadmap: A Locked Rate Isn’t A Closed Loan

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Further Reference
-‘Record Low Rate’ Headlines Are For Expired Rates
-How To Shop For A Mortgage
-WeeklyBasis Rate Recap/Outlook

But rates change in real time. Example: they rose and fell .25% last week as Eurozone optimism did the same and U.S. home prices, jobless claims, and GDP were first perceived positively then sentiment reversed. This extreme daily volatility won’t stop. So here’s how to shop for a mortgage.

Shop For Loan Agents, Not Rates
Every consumer shops for mortgages and they should. But this is the critical distinction: you should be shopping for the best mortgage advisor. If you have that, you’ll get the best rate.

Here’s what I see every week with shoppers focused only on rate: I quote a rate only after I’ve analyzed their entire financial profile and analyzed their home’s value and condition—also known as pre-approving them.

They’ll either tire of the pre-approval analytics or be unhappy with the rate and go somewhere else.

Then 80% of those cases come back to me because the competing rate quote was revealed to be incorrect when the other lender actually completed the client’s profile, or the home’s value/condition made the loan ineligible.

Mortgages are extremely competitive so rates and fees are generally the same with most (established, credible) lending firms.

What’s not the same lender to lender is the loan agent’s ability to advise properly, analyze borrower and property profiles, and close with no surprises.

So shop to find the lender and loan agent you feel most confident can perform on these three things.

Then work with that loan agent to pick a rate target you can’t or won’t go above, and give them a standing order to lock when they see it.

That’s for refinancers. For homebuyers, you can’t lock a rate until you’re in contract to buy a home. Once you’re in contract, the same approach applies.

Rate Targeting
Their are two reasons for the pre-approval and rate targeting tactics discussed above:

(1) A rate quote that flies through the air means nothing. If a loan agent doesn’t issue you written terms after obtaining a full profile on you and your home, then you haven’t received a quote you can count on.

(2) Rate lows are here and gone each trading day as mortgage bonds rise and fall on economic and technical trading signals. So rate targeting ensures you’ll obtain the best rate amidst all the volatility.

Your loan agent should also be able to brief you daily or weekly on the market outlook.

Rate Preview October 3-7
Here are next week’s economic calendar highlights with rate impacts:

ISM Manufacturing Index Monday: This is a national reading of manufacturing activity, and while the last two months barely crossed into positive territory in July and August (50.9 and 50.6 respectively. Above 50 is expansion, below 50 is contraction), the regional surveys out of New York, Philadelphia and Chicago haven’t shown any consistent strength in recent months. This may drop to 50 or below, and if so, rates would be even to down.

Jobs Reports Wednesday & Friday: Payroll provider reports their September jobs figures Wednesday, and the official Bureau of Labor Statistics September report comes Friday and markets are expecting to show 60k new payrolls created. This after the economy added zero non-farm payrolls in August. Plus July was cut to show 85k new payrolls instead of the previously reported 117k, and June was cut from 46k to 20k. If Friday’s report is below expectations, rates will fall.

Europe Debt Crisis: As the Economist explains this week, political paralysis in Europe is still the theme so rates will still rise and fall on each little development in Europe.

Also Ben Bernanke gives his economic outlook to Congress Tuesday, and the Fed’s Operation Twist—where they sell short-term Treasury debt and buy long-term debt—begins Monday. Bernanke will likely reiterate the Fed’s rather dismal outlook reported September 21, which is neutral to better for rates.

Bottom line: Rates are likely to remain even next week, along with some brief dips below current lows.
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Must-Read for mortgage shoppers:
Refi Roadmap: A Locked Rate Isn’t A Closed Loan

Also, here’s a good infographic from last summarizing recent housing surveys. Click image for original KCM Blog post.

There’s always a rush to lock rates on dips, and extreme daily rate swings only raise the urgency. But just because your rate is locked doesn’t mean your loan will close. Here’s a guide I wrote on Mortgage News Daily to help you make sure it does: Refi Roadmap: A Locked Rate Isn’t A Closed Loan

-Refinancing Window Reopens For Some (Marketwatch)
-August Refi Boom: Consumer Tips (TheBasisPoint)
-Amy Hoak, Marketwatch Housing Reporter (Follow Amy)