VA Loan Updates

EDMOND - This past week I received a phone call from a customer for whom I had provided 100 percent V.A. purchase money financing early this year. He asked if I had a few minutes to discuss a refinance offer he had received in the mail. The offer promised he could refinance back into a V.A. mortgage at a 5 percent fixed interest rate for 15 years. He wanted to know if I could match their offer. Before I answered, I asked the question I always ask before making any recommendation; "Help me understand exactly what you're trying to accomplish."  It may seem obvious that he wanted to refinance into a lower interest rate. But after a few minutes of conversation I discovered that his true interest was paying off his home so that his wife would not have to worry about the payment should something happen to him. The man is an honorable man and a disabled Vietnam veteran. He lives in a modest home and draws a modest income. Yes, the interest rate of the mailed offer was attractive, and so was the term of the loan, 15 years. The lesser interest rate and shorter term translated into a higher monthly payment of $336, but the new mortgage provided him the peace of mind he sought. I asked him to Fax me the Good Faith Estimate of Closing Costs and allow me to review the offer. He did so, and after looking over the other broker's proposal, I called him back to discuss additional options. The broker had indeed promised a 5 percent fixed interest rate for 15 years. However, the up front costs associated with this mortgage exceeded $5,000! I made a similar offer of 5.5 percent fixed interest rate with only $550 up front costs. The difference in the monthly payments was $10.45. I asked my customer whether he thought paying more than $5,000 in up front costs  "even though the monies came out of the equity of his home and not his bank account" seemed like a good idea. He thought for a moment and then said that it did.  "With their proposal I can pay off my home in 15 years and save $10 a month over yours." I asked if he had a calculator. He said he did and made it handy. I asked him to multiply the $10.45 monthly savings by the number of months in 15 years, 180. He arrived at the same number as I had: $1,881. Then I asked, "By choosing their proposal, you are saving a total of $1,881 over the next 15 years, and you are paying over $5,000 in up front costs for that privilege. Does that still make sense to you?" He paused for a moment and then asked, "What should I do?" My response surprised him, and may provide insight to many of my readers as well. I recommended that he keep the loan he had thus avoiding any costs of a refinance. Just for the record, the competitors^' total closing costs were in excess of $8,000. I also recommended that he begin making additional monthly payments of $336.22 to principal, which equals the difference between his current mortgage payment ($1023.95) and the proposed 15-year payment ($1,360.17). If he did this, he would pay off his current mortgage in just under 16 years. The phone line was silent for a few seconds while he considered the recommendation. He asked, "How much would I need to pay each month to pay off the note in 15 years?" I did a quick calculation and replied, "$350."  Again the line was quiet. After several seconds, he said, "Thank you very much, that gives me a lot to think about. Happy Thanksgiving!" Before hanging up the phone I asked him to call me back when he made up his mind; "I would just like to know what you decided to do."� He did not hesitate this time, "Oh I^'m going to do what you suggested and keep my loan and make extra payments to principal." We hung up the phone and I sat back in my chair, again grateful for the opportunities I have to serve. Found here. Sphere: Related Content