With the cut in the prime interest rate there have been a number of articles in the press discussing refinancing. Articles about refinancing seem to always discuss how much money you can save in your monthly payment if you refinance now. While I am all for saving money (I like doing it myself sometimes) I think if you are going through the trouble to refinance you should already not just look save money now but reassess risk. Let me give you examples of a few different types of borrowers and I will illustrate different examples of how people can reassess risk.
Chaim and Susan have seen significant changes in their professional careers. When they bought their home in 2005 they took a large mortgage that was totally based on prime rate minus 1.5% (yes we did those back then). Chaim was a 29-year-old stockbroker in the US at the time and Susan at 28 worked for her family’s booming real estate development company in the US that built single family homes in the Midwest. They took a 80% mortgage at the time (Yes we were able to do those back then as well) and they really thought they that even though they took a 30 year loan they were going to pay it off in ten years. Then the crash of 2008 happened. Chaim’s clients took heavy loses as did he and he ended up deciding to leave the business and pursue his passion of technology in the financial sector. Susan’s family’s business was wiped out and ended up scaling down significantly and she had to look else where for a job. She had gained many years experience as a CFO and was able to find a position with an American company in Israel as their CFO. Most importantly, over the past eight years Yossi, age six and Channa, age three, came into being. So now Chaim and Susan have good stable jobs, they have two beautiful children and they are thinking more about stability in the long term than saving money in the short term. They don’t see significant creases in their income in the long term and they are worried about the risks of interest increases in the future so they reassessed the situation with Baruch, their Moville Mortgage and Finance Ltd loan officer, and decided that even though it is going to cost them more money every month they are going to refinance and get a 30 year fixed rate (nominal of course) mortgage.
Shlomo and Miriam bought their home on paper from a builder in 2007. They listened to their banker at the time and took a mortgage linked to the Madad with a rate that adjusted every five years. At the time, Shlomo was just starting out as programmer and both he and Miriam were working for Israeli companies. Now, Shlomo is a very accomplished programmer and is an independent contractor working for US companies (he is always paid in dollars) and Miriam is no longer working. They are looking at refinancing to help cushion what they call “exchange fear” watching the dollar fall against the shekel and their mortgage payment cost them more. In discussing their situation with Adam, their Moville Mortgage and Finance Ltd loan officer, they expressed these fears and he offered them a few solutions that allowed them to be total hedged against (i.e. protected from) the currency swings so their cost in dollars will always remain constant.
These two examples illustrate situations where changes in ones life’s over a period of years can change the type of mortgage one needs. Just like investment portfolios have to be regularly reexamined to make sure they meet your current needs, the same should be done with your mortgage.
Moshe Wilshinsky is the CEO of Moville Mortgage & Finance LTD. Contact information: In Israel: 073-796-2226 and press the special 711 Bizness Magazine extension; U.S.: 201-377-3418; UK: 208-596-4501. Website at www.movillefinance.com.