“Maybe it’s a good time to refinance, or maybe not,” said Donna Murphy, deputy comptroller for compliance risk policy in the Office of the Comptroller of the Currency. “It depends on how far a consumer is into their mortgage and a lot of other factors, such as how high their current mortgage interest rate is.”
“Answering that question depends on what the consumer’s objective is,” added Richard Taft, deputy comptroller for credit risk policy, also with the Comptroller of the Currency’s bank supervision policy
“Are they trying to maximize their available cash? Are they refinancing because they want to have lower debt as they retire? Answering these and other important questions,” he continued, “demands a more sophisticated approach than answering a call from a loan broker who offers to help you out with your mortgage or find you a lower mortgage interest rate.”
Murphy notes that the consumer’s objectives are critical because there are also options regarding what type of loan is being sought.
“If you have an adjustable-rate loan and this is a time when fixed-rate loans are relatively low,” she continued, “you might want to make sure your costs are stable going forward. That could mean looking at the potential benefits of a 15- or 20-year fixed-rate mortgage.”
As a way to get started in what can be a somewhat complicated decision regarding whether to refinance, Murphy suggested that consumers start by seeking advice from a bank where they have existing relationships.
“The key is to find someone who will walk you through the range of products that are available and the pros and cons associated with them,” she said.
There are some helpful resources and websites such as the Consumer Financial Protection Bureau, Murphy explained, which has a section on its website that walks homeowners through the different stages of the mortgage loan application process.
Another of Murphy’s suggestions is to consider getting estimates from at least three different lenders of the costs and rates associated with refinancing a loan so that they can “comparison shop.”
“One of those three,” notes Taft, “should probably be your current lender. If you have a good repayment history, your current lender might be your least expensive option because they have an incentive to try to keep you.”
Both Murphy and Taft strongly warn consumers to be aware of mortgage scams.
“If someone cold calls you,” Murphy said, “don’t give them information over the phone. Go to the internet to search for the official website of whatever lender you’re thinking about talking to. Way too many people get caught in scams where somebody is offering to fix your credit score or get you a quick loan.”
Another warning is offered by Bryan Hubbard, deputy comptroller for public affairs, who recalls the period around 2008 when many consumers refinanced their mortgages as a way to take the equity out of their homes. “At this moment people need to look at what may be ahead,” Hubbard said. “They should consider the value of the equity in their home today and be very careful about taking out cash and using it in a way that does not improve their financial condition or the value of the property.”
“We don’t want to see people who are struggling turn their homes into ATMs,” Taft concluded.