Refinancing During The Coronavirus??? – Yes or No?

hey what’s up everybody this is Sam Kwak
here one of the Kwak Brothers and in this video what I’m going to dress the
question should I refinance my home right now in middle of the core virus
epidemic and welcome back everybody this is Sam Kwok here one of the kwok mothers
and this is a question that I get quite a bit right now which is Sam should I go
refinance my home during the corona virus epidemic and the real question
that they’re asking is Sam should I go refinance because the federal reserve
rate is now at 0% well there’s some misconception around this topic that a
lot of people believe that the interest rates are super low right now because
the federal reserve has dropped a rate which isn’t entirely true what’s really
happening is that because of this demand that there’s this perception that the
interest rates low the banks have increased what’s called a marginal rate
now the marginal rate is essentially the rate that the banks are charging new on
top of the federal reserve rate so the Federal Reserve rate is at zero most
banks are right now charging anywhere between three to five percent in terms
of marginal rates so consequently the real interest rates that you’ll end up
paying when you refinance or get a new mortgage is anywhere around three to
five percent unless you fit in some sort of special categories such as the VA
loan or FHA there are some exceptions there but majority of the banks are
still charging relatively the same amount of interest rate as they did
before this whole coronavirus epidemic so that’s myth number one that’s right
now there’s a lot of you know misconception and I know a lot of the
realtor friends that I have or going around pitching that the interest rates
are low therefore they should go buy a house which is not all that accurate
it’s not all that true be sure to check the facts before you go and refinance
and get a new mortgage now the second point that I want to make is that
refinance in general isn’t necessarily best for your financial decision and I
know a lot of you might be saying well Sam shouldn’t I want to refinance to a
lower interest rate isn’t that the better idea so what I’m gonna do is I’m
gonna go and pull up a clip from one of my last YouTube videos explaining why
refinancing is terrible you’re not actually saving money even though the
new rate is at a much lower rate so I’m gonna go pull up the clip right now and
have the old me explain why refinancing is terrible
a lot of people come and tell me Sam my mortgage broker buy my banker says I can
save money by refinancing is it true well sort of I’m gonna share something
that the bankers and the mortgage brokers are not telling you guys so
let’s go and dive right in what I’m about to draw for you guys is called the
a MERS Asian chart and trust me I know this is this might sound boring stay
with me here I’m gonna make it really fun if you guys know me I like to joke
around and I like to have fun including we put toppings like finance so let’s go
in and draw up the chart and this line that goes from left to right this right
here represents the amount of years that you’re gonna spend paying off your
mortgage so a lot of you guys may have a 30-year amortized mortgage meaning takes
30 years to fully pay off your mortgage or some of you guys may have fifteen
year amortization I’m gonna go in more so with a 30-year amortization because
that’s vast majority of people today and they’re a musician schedule so this is
30 years okay zero years and this line that goes up and down right here as you
guys can see represents the monthly payment that you make to the bank for
your mortgage so I’m gonna go in with a with a random number of say thousand
dollars a month I know some of you guys may have more some of you guys have less
well just this is just an example I’m gonna draw a line that represents the
amount of interest that you’re paying over time so this red line let’s use red
there we go this red line represents the amount of interest that you gonna pay
throughout your 30-year mortgage the more you pay off your mortgage actually
the less of an interest you pay blue line that I’m gonna talk about to draw
here for you guys represents the principle that you pay
every month so this represents principle so principle is what we want to pay off
morai principle is the actual amount of the mortgage that we’re looking to pay
off and builds equity builds wealth and it’s the good thing
now of course interest is what goes to the bank it makes the bank’s more money
its profitable for the banks so thus we don’t want to pay as much interest and
it’s not in our best interest right it’s kind of weird to say that as you can see
if you just got your mortgage right vast majority of what you’re paying in the
beginning is towards the interest so this right here area right that’s all
interest so out of that thousand dollars monthly payment that goes to the bank
approximately eighty to ninety percent of it is
straight to interest and of course it all depends on the interest rate that
you may pay vast majority of you guys towards the beginning banks are
profiting a lot of money on your mortgage right now of course the longer
that you pay the mortgage right the longer that you stay on this mortgage
you can see that you’re picking up more equity you’re picking up more principal
and you’re paying less interest now here’s the issue when it comes to
ultimately refinancing let’s say you make it to about eight to ten year mark
let’s say this is eight to ten years when you get to this part right about
yonder as you’re started pick up a bit more equity you’re picking up more
principal starting to pay less interest towards a bank well guess what happens
well couple things happen number one a lot of people today internationally are
moving quite a bit for a new job a new career you know their kids are
graduating whatever the case might be but if we’re talking about just the
United States vast majority of us switch careers quite often now right we no
longer have a culture where we stick around for 30 years and we retire and
the company takes care of us we don’t have that as as much as any more back
you know 30 40 years ago so today we’re always switching jobs right from every 7
years we’re looking to get into a new job new career and that may mean we have
to move we have to sell our house and relocate to go to a different location
well what happens is if you sell your home and you decide to get a new
mortgage well do you get to continue this progress of from the 8 to 10 year
mark all the way to 30 no you don’t get to now there is an option where you can
actually buy a new home and get a shorter amortization
but most people don’t do that because one being lack of cash flow or just they
just don’t know so when you get a new home and you enter into a new mortgage
well guess what you don’t get to continue to progress from here and from
there and out you have to start all over from the from the from the beginning
from the pretty much ear 0 and you’re back to paying this vast this huge
amount of interest all over again it’s not to our Vantage to actually move
and buy a new home and so on because we’re again going back to this area of
paying more interest so the technical term for that is called front loaded
interest meaning towards the front of the mortgage beginning of the mortgage
it’s fully loaded with interest even if you don’t move right even if you don’t
relocate if you stick the same place for for a while well this
is when you know the mortgage brokers and lenders will start to contact you or
call you and say hey mr. mrs. borrower congratulations you’ve been paying this
mortgage berg for a fair amount of a long time eight to ten years is a good
chunk of time listen we got this amazing promotion we got this amazing interest
rate come on down to our office let’s go and take a look at this again and let’s
get you refinance to a smaller or a smaller amount of interest and of course
most people are like yeah that sounds like a good idea let’s go and take that
thousand dollars a month the payment that we have and this this mortgage
broker is sitting in front of me is telling me that I could I can go from
thousand dollars a month and if I refinance I can go down to nine hundred
dollars a month and most people of course unfortunately they’re not as you
know person to finance finance and financial literacy they take a look at
that I’m like oh my gosh that’s 100 bucks that I can save every month that
means I can buy more groceries I can go and put more gas in my grid my car or I
can go spend this on Vegas whatever the case might be most people fall into this
trap thinking that oh I’m saving money when they’re not it’s kind of like going
into a car dealership and of course the car sales guys trying to get you focused
on the monthly payment they don’t want you to pay attention to the price they
don’t want you to pay they don’t want you to pay attention to the interest
rate all they want you to focus on is the monthly payment because that’s how
most people think they think short terms well of course you guys are pretty smart
to figure this out by now yeah you’re paying nine more bucks but guess what
you’re going all the way back to the beginning you’re not getting to continue
that progress of you know from the eight to ten year mark you have to go back to
ears zero and again you have to pay the full you know the front loaded interest
all that interest back to the banks again so the banks are in it for the
long term they’re not in it for the short term they don’t care that you’re
gonna be paying less you know as far as hundred bucks every month they really
don’t care what they do care about is how much you’re gonna actually end up
paying by the time you get to the thirty year mark or never because what tends to
happen is people keep on refinancing over and over so this is what happens
they get to the eight to ten year mark and they refinance again right they go
back and then they get to this part and they refinance again so pretty much a
lot of people perpetually get stuck in this realm of paying
crap-ton of interest and excuse my French right I I mean that’s a lot of
interest that your fokin over so most people never get to this this zone here
pretty much after the ten to fifteen year mark where you’re actually getting
to pay off mortgage you’re paying your your principal you’re actually getting
to pick up your your equity your net worth
this is a spot that you want to be in right to pay off the principal okay so I
hope that gave you some explanation as to why refinancing is not the best idea
in general especially now these days if you’re gonna go and pay off your
mortgage or look to save money on your mortgage be sure to check out our other
video how to pay off your mortgage within five to seven years it’s can
explain exactly how you can do so without having having to refinance into
another 30-year or 15-year mortgage I hope that video is gonna explain
everything about that so just to recap of what we talked about today I know the
the perception right now is that the Federal Reserve has dropped the interest
rates but it’s not necessarily translating to the actual interest rates
that you may pay during a refinance or a new home purchase so be sure you keep
that in mind before you go shop around and don’t let a mortgage broker convince
you otherwise some thank you so much for tuning in be sure to subscribe to our
YouTube channel for more updates right now about coronavirus and its impact on
real estate finance he locks etc join us we’re actually having a live session
again pretty soon here for Q&A so be sure to subscribe to our YouTube channel
hit the bell notification icon so that you get notified I appreciate it love
you guys and I’ll see you guys in another video take care

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