August 2023

Kong Fuzi, more famous in the West as Confucious, is arguably the best-known and most influential Chinese philosopher of all time. Despite living two and a half millennia ago, his writings could easily serve as an inspiration and a guide to modern-day startup founders. After all, even though the technology founders deal with is new, the problem of overcoming difficulties and dealing with people is as old as humanity itself.

1. It does not matter how slowly you go as long as you do not stop.

Even in the world of startups in which exponential growth is a crucial factor, overnight success is largely a myth. Before any impressive growth curve usually stands years of effort, experience, and failures.

Consequently, persistence is paramount. Instead of fixating on immediate results, as a founder you should focus on consistent effort and incremental progress. Every step, no matter how small, takes you closer to your goals.

2. I hear and I forget. I see and I remember. I do and I understand.

A reminder that experience is the only real teacher. This is why as a young startup founder you should seek out the help of mentors and advisers and you should also try to draw experienced professionals into your early startup team.

Moreover, the most profound insights emerge through firsthand experience, allowing you to gain a deeper understanding of your industry and refine your strategies accordingly. It’s usually a bad idea to start a project in a field in which you have no firsthand experience.

3. Our greatest glory is not in never falling, but in rising every time we fall.

Another excellent reminder that in startups (and often in life) failure is inevitable and that resilience is a big part of what distinguishes the successful from the unsuccessful.

4. Wherever you go, go with all your heart.

Successfully taking a startup project from zero to one is extremely hard. Unless you are fully committed, you’d be unlikely to succeed and even if you do – the cost might not be worth it.

5. The object of the superior man is truth.

In business, integrity and honesty are foundational principles. In the long run, your reputation is your most valuable asset, so it’s rarely worth tarnishing it for short-term gains.

More uniquely for startups, however, one of the easiest ways to lose your time and money is to give in to self-deception. That’s why it’s crucial to constantly test your vision and ideas against reality and to adjust your plans based on the feedback that the market is giving you. In that sense, as an early-stage founder, you need to function as a scientist and to hold truth as your number one value and priority.

6. Only the wisest and stupidest of men never change.

Adaptability is a hallmark of successful startups. Confucius’ words highlight the importance of learning and evolving. In the rapidly changing business landscape, founders who remain open to new ideas, market shifts, and feedback are the ones who thrive. Stubbornness inhibits growth, whereas embracing change fosters innovation and resilience.

7. They must often change, who would be constant in happiness or wisdom.

A reminder that success is a journey, rather than a destination. This is more than true for startups, as it is for most things in life.

8. The superior man makes the difficulty to be overcome his first interest; success only comes later.

As a founder, your job is to solve problems. Success takes care of itself if you aim the enterprise in the right direction and if you take care of the challenges put in front of you efficiently.

Second mortgages allow investors to tap into the equity of their existing property holdings. Many investors cash out equity in their rental properties to make other investments. You can use a second mortgage in many ways, including property enhancements, portfolio diversification, or to maximize returns. 

It pays to understand your options about second mortgages because there are other ways to get liquidity, such as cash-out refinancing. Here is what you need to know about second mortgages to consider their suitability for your investment goals. 

What Is a Second Mortgage?

A second mortgage is an additional mortgage loan secured from a property with a primary mortgage. The property serves as collateral for both mortgage loans. Investors who want to access the equity they’ve accrued in a property can use a second mortgage to access funds without liquidating assets. Unlike the initial mortgage used to purchase the property, the proceeds from second mortgage loans aren’t limited to a specific purpose, giving investors greater flexibility for reinvesting the borrowed funds. 

Four Different Types of Second Mortgages   

Second mortgages are available in different types, each with specific features and benefits tailored to investors’ needs and circumstances. Understanding them is essential for investors considering the potential of second mortgages while minimizing risks and maximizing returns. The range of options for a second mortgage includes:

1. Home equity loan

A home equity loan involves borrowing a lump-sum amount against the equity accrued in your property. This type of second mortgage typically comes with a fixed interest rate and a predetermined repayment schedule. 

Home equity loans are attractive to investors for a specific, one-time expense, such as a major renovation project or a significant investment opportunity. The predictability of fixed payments and interest rates with a home equity loan provides stability, so it’s easier to incorporate a home equity loan into your financial planning.

2. Home equity line of credit (HELOC)

A home equity line of credit (HELOC) can be an excellent choice for real estate investors who prefer flexibility and ongoing access to funds. Like a credit card, a HELOC offers a revolving credit line up to a predetermined credit limit. Home equity lines of credit often have a variable interest rate, so your payments may fluctuate. 

HELOCs are ideal for investors who want a safety net of funds readily available for various investment opportunities or unforeseen expenses. Additionally, interest from a HELOC may be tax-deductible. 

3. Piggyback loans

Piggyback loans, also known as 80-10-10 or 80-15-5 loans, involve taking out a second mortgage alongside your primary mortgage, allowing you to avoid paying private mortgage insurance (PMI). The primary mortgage covers most of the property’s purchase price (typically 80%), while the second mortgage covers a smaller portion (e.g., 10% or 15%). Investors can reduce their monthly payments and allocate more funds toward their investment goals by avoiding PMI. These loans are valuable for investors looking to optimize their financing structure. 

4. Cash-out refinance

While not strictly a second mortgage, cash-out refinancing (cash-out refi) is an alternative for accessing property equity. Investors refinance their existing mortgage to secure a larger loan than the outstanding balance. Excess funds are then received in cash and directed toward investments. Cash-out refinancing may be a better alternative than an equity loan or HELOC if your property’s value has significantly appreciated since getting the current mortgage.

Related: HELOC vs. Home Equity Loan: Pros & Cons for Investors

How Much Do Second Mortgages Cost? 

Understanding the financial implications of a second mortgage is essential for real estate investors. The cost of a second mortgage includes various factors that can influence the overall cost and affect your bottom line. Here’s a breakdown of these factors:

Interest rates

Interest rates play a fundamental role in determining the overall cost of a second mortgage. Unlike primary mortgages, second mortgage interest rates tend to be slightly higher due to the increased risk of having a subordinate lien on the property. The rate can be fixed or variable, with variable rates subject to potential fluctuations based on market conditions. Careful consideration of the interest rate is crucial, as even minor variations can significantly impact the total interest paid over the life of the loan.

Closing costs

Similar to primary mortgages, second mortgages include closing costs, which cover various fees associated with the loan origination process. These fees may include appraisal fees, credit checks, loan origination fees, title search fees, and more. Closing costs can vary widely based on the lender, the new loan amount, and property location. It’s critical to factor in these costs when assessing the affordability of a second mortgage.

Loan terms and repayment period

Your second mortgage’s cost is impacted by the loan terms and repayment period. Shorter repayment periods may lead to higher monthly payments but lower total interest payments. 

On the other hand, an extended repayment period offers more manageable monthly payments but potentially results in higher total interest costs. Balancing your financial capabilities with investment objectives is critical when determining optimal home loan terms.

Loan amount and LTV ratio

The loan-to-value (LTV) ratio compares the loan amount to a property’s appraised value. A higher LTV ratio indicates a greater risk for the lender, potentially leading to higher interest rates and costs. Mortgage lenders typically have maximum LTV ratios for second mortgages, and these limits can impact the terms and loan costs.

Repayment schedule

Different second mortgage types may come with various repayment schedules. Home equity loans usually have fixed monthly payments, while HELOCs offer more flexibility, allowing you to draw funds as needed and make interest-only payments during the draw period. The choice between a fixed repayment schedule and a flexible one adds to the total cost of a second mortgage. Before moving forward with a second mortgage, get quotes from multiple lenders, compare terms, and use online calculators to estimate your potential monthly payment and costs.

Pros of Second Mortgages

Second mortgages can be a powerful financial tool that unlocks the door to a wide range of strategic advantages for additional investments. Here are the pros of second mortgages for investors:

Access to capital

One of the most important benefits of a second mortgage is access to funds without liquidating existing assets. This capital can be allocated in various ways, such as financing property upgrades, seizing time-sensitive investment opportunities, or diversifying your real estate portfolio. By leveraging home equity, you can tap into resources that can supercharge your investment goals.

Potential tax advantages

Second mortgages offer tax advantages that can contribute to your bottom line. Interest paid on a second mortgage is often tax-deductible, providing potential savings on your annual tax bill. It’s crucial to consult with a tax professional to understand the tax implications based on your specific circumstances.

Home improvement financing

Real estate investment thrives on enhancing property value, and second mortgages provide a way to finance improvements. Whether renovating a fixer-upper or upgrading an existing property to meet market demands, a second mortgage can supply the necessary funds to boost your investment’s potential resale value.

Portfolio diversification

Investment diversification is a cornerstone of risk management. Second mortgages can free up capital that can be reinvested in additional properties or other investment vehicles, spreading risk out. Diversification safeguards against the potential downturn of a single asset and positions you to capitalize on diverse investment opportunities.

Flexibility and versatility

Different second mortgage types offer various levels of flexibility. Home equity loans provide predictable fixed payments, while HELOCs offer an adaptable revolving credit line. This versatility enables you to tailor your financing approach to align with specific investment strategies, providing you with the agility to jump on favorable market conditions or navigate shifting investment priorities.

Enhanced leverage

Leverage is a hallmark of real estate investment that can amplify potential returns. By securing a second mortgage, you’re effectively maximizing your purchasing power, allowing you to acquire additional properties or capitalize on ventures that may be out of reach with your current cash reserves. 

Cons of Second Mortgages

While second mortgages offer a range of advantages for real estate investors, it’s equally important to be aware of potential drawbacks and challenges. As you consider adding a second mortgage to your investment plans, it’s crucial to weigh these cons against the benefits to make an informed decision. Here are some drawbacks of a second mortgage to consider:

Increased debt burden

Getting a second mortgage requires adding debt to your existing primary mortgage. This increased debt burden can impact your financial obligations and strain your monthly cash flow. Carefully assess your financial capabilities to ensure you can manage two mortgage payments.

Risk of foreclosure

Defaulting on a second mortgage can lead to foreclosure, just like a primary mortgage. But the primary mortgage lender can claim the property’s proceeds during foreclosure. If the property sells to cover the debt, the second mortgage lender may receive less or possibly nothing, depending on the available funds. This risk underscores the importance of diligently managing your mortgage payments to avoid foreclosure.

Variable interest rates

Certain types of second mortgages, particularly HELOCs, often have variable interest rates that fluctuate based on market conditions. While initial rates may be low, potential rate hikes could lead to higher monthly payments and increased costs. Understanding your second mortgage’s terms and potential volatility is crucial before committing.

Costs and fees

Second mortgages come with associated costs, including closing costs, origination fees, and potentially higher interest rates than primary mortgages. These expenses can add up and impact the affordability of the loan. Careful consideration of these costs will help determine whether the benefits of the second mortgage outweigh the expense.

Potential diminished equity

The more mortgages you have on a property, the less equity is available. This reduced home equity can impact your financial flexibility and limit your ability to leverage the property for future investments or financing needs. Balance the benefits of a second mortgage with the long-term implications for home equity.

Subordinate lien status

Second mortgages hold a subordinate lien position to the primary mortgage, so in the event of foreclosure, the primary mortgage lender gets paid off before the second mortgage lender receives any proceeds. If property values have declined since receiving the loans, the recoverable amount for the second mortgage lender may be affected.

Overleveraging

While leveraging can boost returns, overleveraging—taking on too much debt—can expose you to financial risk, especially in a market downturn. Striking a balance between leveraging your investment and maintaining a manageable level of debt will protect your financial stability.

Second mortgages offer many benefits for real estate investors but have potential pitfalls. Understanding the pros and cons is critical when incorporating a second mortgage into your investment strategy. 

How to Get a Second Mortgage

As a real estate investor, getting a second mortgage can help you secure the financing you need while minimizing risks and maximizing your investment opportunities. Here are 10 steps to navigating the second mortgage process:

1. Evaluate your financial situation

Before getting a second mortgage, review your current financial status. Check your credit score, debt-to-income ratio, and overall financial stability. Mortgage lenders look at these factors to determine your eligibility and interest rates. 

2. Calculate your available equity

Determine how much equity you have in your property. Equity is the difference between your property’s current market value and the outstanding balance on your primary mortgage. The loan amount and terms for your second mortgage are determined in large part by the amount of equity in your home.

3. Gather documentation

Lenders require extensive documentation during the application process. Gather documents such as recent tax returns, proof of income, bank statements, and information about your primary mortgage. Having these materials readily available streamlines the application process.

4. Research lenders and loan types

Explore different lenders that offer second mortgages and compare their offerings. Determine which works best with your investment goals by researching various loan types, including home equity loans and HELOCs. Each type has its benefits and drawbacks, so choose one that best suits your financial needs.

5. Submit your application

Once you’ve selected a lender and a specific loan type, submit your application. Be prepared to provide detailed information about your financial history, credit score, property details, and the purpose of the second mortgage. Accurately completing the application increases your chances that the lender will approve your second loan.

6. Underwriting and appraisal

After submitting your application, the lender starts an underwriting process to assess your creditworthiness and the property’s value. An appraisal will determine the current market value of your property. The results will influence the loan terms and amount you qualify for on the loan agreement.

7. Compare loan offers

Once the underwriting and appraisal processes are complete, you’ll receive loan offers from lenders. Review each offer’s terms, interest rates, fees, and repayment schedules. Compare offers to select the one that aligns with your investment goals.

8. Finalize the loan

Once you’ve chosen a lender and loan offer, you can finalize the second loan. You’ll review the terms, understand your repayment obligations, and sign the loan documents. Make sure you fully understand the terms before signing.

9. Effectively use the funds

Upon receiving funds from your second mortgage, you can strategically allocate your finances based on your investment goals. These may include property improvements, portfolio diversification, or additional investment opportunities.

10. Monitor and manage

After getting a second mortgage, closely monitor your investment progress, and diligently manage your financial obligations. Stay on top of your monthly payments, track your property’s performance, and be prepared to adapt to changing market conditions.

As you move forward, continue to educate yourself and seek advice from financial professionals to make informed decisions that advance your real estate investment goals.

Second Mortgage FAQs

Here are answers to some of the most common questions real estate investors have when considering second mortgages.

Why do people get a second mortgage? 

People get a second mortgage for many reasons, mainly driven by financial goals and investment aspirations. Real estate investors may choose a second mortgage to access funds for property improvements, diversify their portfolio, or seize time-sensitive investment opportunities. A second mortgage can also serve as a home improvement loan, debt consolidation loan, education fund, or to cover unforeseen expenses. Second mortgages offer a way to tap into your home’s equity, providing a valuable resource to fulfill both short- and long-term financial plans.

Is it a good idea to get a second mortgage?

Whether getting a second mortgage is a good idea depends on your specific financial situation, investment goals, and risk tolerance. Second mortgages can provide access to significant funds and potential tax advantages, but they also come with increased debt and the risk of foreclosure if not paid on time. 

First, thoroughly assess your ability to manage additional debt, evaluate potential returns on your investment, and consider alternative financing options. Advice from financial professionals can help you make an informed decision that aligns with your financial strategy.

Are second mortgages risky?

Second mortgages have certain risks. Foreclosure is a significant concern, as defaulting on a second mortgage can lead to the loss of your property. And second mortgages often have variable interest rates that fluctuate over time, potentially increasing monthly payments. Overleveraging can expose investors to financial risk, especially in a market downturn. Reducing these risks requires careful financial planning, disciplined management of mortgage payments, and a clear understanding of the terms and potential implications of the second mortgage.

How can I get equity out of my house without refinancing?

Some alternative options for accessing your home equity without refinancing include getting a home equity line of credit (HELOC), which provides a revolving credit line based on your property’s equity. HELOCs allow you to draw funds as needed, like a credit card, without refinancing your primary mortgage. Another option is a home equity loan, which provides a lump-sum amount against your property’s equity. 

These alternatives allow you to access funds without refinancing, but each comes with specific terms and considerations. Research and compare to determine the best fit for your financial goals.

Final Considerations

While second mortgages present attractive possibilities for real estate investors, they also have potential pitfalls. Careful consideration, thorough financial planning, and a comprehensive understanding of both the pros and cons are essential when incorporating a second mortgage into your investment strategy. Use this information as a foundation to make strategic decisions that contribute to your investment success. Empower yourself to navigate the second mortgage application process by being well-informed so you can make sound decisions for your financial goals.

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Retail sales were up 0.2% in June, but that doesn’t mean the U.S. economy is booming. First off, the bump was lower than projected. Secondly, some categories—including gas, books and garden equipment—went against the grain. Retail sales in these sectors declined, reinforcing the reality that consumers aren’t overly eager to spend.

It’s not surprising, given the Fed keeps announcing interest rate hikes to slow inflation. However, sluggish sales create a gloomy environment for businesses looking to make it through to sunnier skies. The old hat marketing and sales techniques may no longer work as well with hesitant buyers.

Fortunately, marketing methods that focus on sustaining long-term growth and building brand loyalty can. Here’s how to use growth marketing to give your sales a boost.

Create Content for Every Stage of the Buyer’s Journey

Traditional marketing can be good at raising awareness. You see a rotation of ads, perhaps too many times. Now you know a brand exists, what it stands for and what it sells. But so what?

You might find the ads’ messages annoying or confusing. Just because you’re aware of something doesn’t mean you’re convinced you need to buy it. And maybe you’ve tried the product before but aren’t sure why you should use it now.

A shortcoming of traditional marketing is that it doesn’t focus on the entire buyer’s journey. It’s also impersonal, as the goal is often to reach as many people as possible with a generic message. A growth marketing strategy takes a different approach. It strives to nurture and convert at every stage, including targeting current customers who might be thinking of abandoning the brand.

Companies can implement growth strategies by creating content for each step in the buyer’s journey. These steps go beyond awareness to acquisition, activation, revenue, retention and referral. Using distinct content to target leads and customers at these various stages makes the messages more relevant. You can also split-test content to see which messages increase sales. You’ll generate demand and improve customer retention at the same time.

Optimize Online Content for Search Engines

A good chunk of your online content will probably be aimed at generating, nurturing and converting leads. Your content needs to be visible to do this effectively. Potential leads won’t find you if your pages aren’t ranking well in the search engine results.

While you may have heard of search engine optimization, it involves more than sprinkling in a few target keywords. Mastering SEO requires aligning your market and keyword research. It also means keeping up to date with search engine algorithm changes, implementing impactful linking strategies and fine-tuning each page’s technical aspects.

Say you’ve devoted a portion of your website to a blog to generate leads. Your posts discuss pain points your market research shows your audience cares about. In addition, each post’s subject matter matches your brand’s voice and identity. However, the blog’s organic traffic volume is below target.

Because of the lower search engine visibility, lead gen numbers are down. An audit reveals that you need to fix several broken links and incorporate more long-tail keywords. After you make the changes, you notice the posts are starting to rank higher. Now you’re getting more organic traffic, which translates to a larger number of prospects you can nurture. Additional leads mean a potential boost in sales as they move to the activation and revenue stages.

Sync Efforts Across Different Channels

Since growth marketing strategies focus on the entire customer experience, more than one channel is involved. Yes, your website’s blog generates leads. But your business also reaches its target audience through social media, email, surveys and online customer service chats. In addition, your strategies rely on paid traffic from pay-per-click ads and amplified social posts.

Syncing your messages across different channels can create a seamless, personalized experience for leads and customers. When communication is well-coordinated, it helps establish authority. Would you be responsive to an email from your bank encouraging you to sign up for a product you already have? You’d probably wonder why you received the message, and the brand would lose credibility.

In this case, the bank should know you don’t need a mortgage given that you’ve been paying on one for years. But what if the bank emailed you about upgrading your checking account instead? Based on the data, the company noticed you’re a good candidate for a higher tier with more valuable incentives. It’s a better-targeted offer and more likely to motivate you to increase your business with them.

Growth marketers realize audiences interact with multiple touchpoints across various channels. And they know people are paying attention and will notice inconsistencies. Integrated cross-channel campaigns improve your company’s chances of generating incremental sales, whether they’re from new or existing customers. The trust sales require comes from consistent relevance.

Growth Marketing’s Role in Increasing Sales

People won’t buy from you if they don’t know you’re there. Still, there’s more to sales than awareness. People also won’t buy if they perceive your offer as untrustworthy or irrelevant.

Growth marketing strategies recognize that awareness, trust and relevance are factors throughout the buyer’s journey—and that current clients are likely to generate more revenue. After all, data shows they outspend new customers by 31%. By leveraging growth marketing techniques such as the creation and distribution of targeted, optimized and relevant content, your company can keep its long-term sales on track.

Are you considering a mortgage refinance but unsure of the costs? Refinancing your mortgage can save you thousands of dollars in the long term. When refinancing, negotiating lower interest rates, tapping into property equity, or shortening the loan term may be possible. However, the cost of refinancing your mortgage could outweigh any benefits of getting a new mortgage. 

Refinancing a mortgage—replacing your current loan with a new one—involves closing costs. The fees included in refinance are typically between 2% and 6% of the loan amount. While a refinance can offer numerous benefits, it’s crucial to consider the costs against the potential savings. Refinancing can be a savvy financial move if you can secure a new mortgage with better terms. 

This article explores the various costs associated with refinancing a mortgage. You will also learn how to lower refinancing costs for a better mortgage deal. Knowing what you can expect to pay to refinance can help determine whether it’s viable for your financial situation. 

What Is the Purpose of Refinancing a Mortgage?

A common reason for mortgage refinancing is to save money. Replacing an existing mortgage with one that has lower mortgage rates or a shorter term can reduce monthly payments, thus building equity in a home faster. Other reasons include debt consolidation, releasing cash from equity, or negotiating a longer term.

Another reason to consider a refinance is private mortgage insurance. For example, many homeowners switch from an FHA loan to a conventional loan when they reach 20% equity. This refinancing move allows them to eliminate the insurance requirements and associated costs.

Homeowners who struggle to make mortgage payments may consider a refinance. Securing a mortgage with a longer term can reduce the monthly payment. However, paying interest on the loan over a longer term makes it more expensive.

Whether refinancing your mortgage is a good financial decision depends on whether the savings justify refinance closing costs.

Related: How to assess mortgage refinance rates

What Should I Expect to Pay in Closing Costs for a Refinance?

Typical closing costs to refinance your mortgage are between 2% and 6% of the refinanced loan. The up-front costs you can expect to pay depend on the loan amount, where you live, and interest rates. Also, factors like debt-to-income (DTI) ratio, loan-to-value (LTV) ratio, and your credit score impact closing costs.

According to Freddie Mac, average closing fees are around $5,000. However, the loan principal, mortgage type, and where you are located all affect the mortgage refinance costs.

Other factors affecting average closing costs include:

• The amount of available home equity
• Mortgage refinance program
• Whether it’s a fixed-rate mortgage or an adjustable-rate mortgage
• Loan term

Like taking out a conventional loan, your lender will consider your financial position, ability to make the monthly mortgage payment, and credit history. It’s also vital to check the small print of your existing mortgage loan terms. Some mortgages have prepayment penalties, which can increase the cost of refinancing a mortgage.

Mortgage refinancing fees

Mortgage refinance closing costs add up quickly; therefore, it’s vital to understand the fees associated with refinancing. Here is what you can expect to pay in 2023:

• Application fee: $500
• Appraisal fee: $300 to $500
• Loan origination fee: 0.5% to 1% of the total loan amount
• Recording fee: The amount depends on state and county
• Title search fee: $200 to $400
• Title insurance fee: Up to $1,000
• Attorney fees: Vary depending on your state
• Survey fees: $300 to $900
• Credit check fee: $25 to $75
• Discount points: Up to 1% of the loan amount

Depending on the mortgage type and home equity, you may have varying costs associated with mortgage insurance premiums.

Here is a list of what you could expect to pay for private mortgage insurance in refinance closing costs:

• Conventional loans: 0.15% to 1.95% of the loan amount annually
• VA loans: 0.5% to 3.3% for the funding fee
• FHA loans: 1.75% up-front fee; 0.15% to 0.75% of the loan amount annually
• USDA loans: 1% up-front loan guarantee fee; 0.35% annual guarantee fee

Each mortgage lender has varying fees, and you may not need private mortgage insurance. Also, depending on the mortgage type, some lenders will waive certain fees. Therefore, it’s vital to consider all closing costs when taking out a new loan to ensure refinancing makes sense for your financial situation.

The Cost of Refinancing a Mortgage: Examples

The best way to understand how refinance closing costs affect your monthly payment is to see examples.

Financial calculators can often help you determine if you can save money on your monthly payments and the total cost of the new mortgage. The formula is generally this:

[Closing costs + fees] ÷ monthly savings = the number of months it takes to break even

Before refinancing, consider how long you plan to remain in your home. If you plan to move in the next few years, refinance closing costs may not allow you to break even. Therefore, it would make more sense to continue with your current mortgage.

Here are a few scenarios to illustrate how calculating fees and costs can help determine if a refinance makes financial sense.

Example No. 1

Let’s say a homeowner has a mortgage balance of $185,000 and wants to reduce the monthly payment. They find a new mortgage with better terms that allows them to save $175 per month. The closing costs add up to 3% of the new mortgage balance, $5,500. Therefore, their break-even point is 31 months, meaning they will save money on their mortgage after two and a half years.

The homeowner could choose a fixed-rate loan or a new loan with an adjustable interest rate, depending on market conditions.

Example No. 2

An investor has an investment property and wants to turn home equity into cash. They have a loan balance of $300,000 on a $750,000 mortgage. The borrower can use a cash-out refinance by taking out a new mortgage. For example, they want to raise $200,000 to invest in a new property. In that case, a mortgage broker can find a competitive mortgage with a new loan balance of $500,000, and the investor gets $200,000 in cash.

It’s important to note that cash-out refinances have higher interest costs than rate-reduction refinances. Therefore, it’s vital to calculate potential savings over the loan term.

Example No. 3

A homeowner has a mortgage loan issued by the Federal Housing Administration (FHA). Because of this, they must make monthly mortgage insurance payments. However, when they have at least 20% home equity, they can refinance into a new loan, eliminating the MIP (mortgage insurance premium). This move could save the homeowner around 0.45% to 1.05% of the original loan amount.

Even though the new loan interest rate could be higher, securing a shorter-term loan and avoiding the insurance premium could result in significant long-term savings.

Related: How to Refinance Your Mortgage: The Ultimate Guide 

Do You Have to Pay Closing Costs Every Time You Refinance?

You must pay fees when refinancing a mortgage. Average refinance closing costs are typically the same as when taking your original mortgage. You can expect to pay closing costs of between 2% and 6% of the loan principal. In some cases, you can negotiate some closing costs with the lender.

Therefore, when considering a refinance, consider all costs like origination fees, title, appraisal fees, monthly payment savings, and how long you plan to stay in the home.

Is There a Way to Avoid Closing Costs When Refinancing?

You can avoid paying closing costs in a lump sum when refinancing a mortgage. This is called a no-closing-cost refinance. This option allows you to roll closing costs into the loan’s term and pay them as part of your monthly payment. However, you cannot completely avoid all refinance closing costs.

Also called a “no-closing-cost refi,” delaying paying closing costs during a refinance makes financial sense when you plan to hold the property for less than five years. This way, you avoid paying thousands of dollars in closing costs and interest over the loan term.

If you plan to hold the property for over five years, a no-closing-cost refi has a higher interest rate. Therefore, you pay interest on the costs, resulting in a higher monthly payment and a more expensive mortgage. In that case, it’s best to pay the costs up front.

How to Lower the Cost of Refinancing a Mortgage

There are several options to reduce costs when closing a refinance mortgage. Of course, there’s no down payment required to refinance. However, you must have the money upfront when refinancing your mortgage. Therefore, exploring options to reduce costs is a smart personal finance decision.

Here are a few options that may help lower monthly payments and get a better mortgage deal.

Improve your credit score

Boosting your credit score is wise before considering a mortgage refinance. A score of at least 740 will help you lock in the lowest interest rate and improve your chances of loan approval. It may also give you more leverage to negotiate certain closing costs with your lender.

Some ways of improving your credit score are to pay off credit card debt, pay bills on time, and limit new credit applications before applying for a mortgage.

Shop around for better mortgage offers and rates

Compare offers from multiple lenders to ensure you get the best refinance rates. In many cases, a mortgage broker has access to several refinance lenders and banks. They can also give you the best financial advice for your circumstances. It is also good to compare the benefits of an adjustable-rate mortgage over a fixed-rate mortgage.

Also, don’t forget to get a quote from your existing lender. They may be willing to waive or reduce some costs, like the application fee or appraisal fee.

Use a mortgage refinance calculator

A mortgage refinance calculator can help you determine your closing costs and how much your monthly payments will be. This way, you can estimate the potential savings of taking out a new mortgage.

Negotiate mortgage refinance costs and fees

One of the best ways to reduce the cost of refinancing a home loan is to negotiate closing costs with the refinance lender. Here is a list of the common closing costs your refinancing lender may be willing to reduce or waive:

• Home appraisal fees, if you recently had a property survey done
• Title insurance
• Credit report fees
• Taxes
• Title search fees

Certain expenses cannot be negotiated. For example, your loan officer cannot reduce fees charged by third parties. These may include the property survey, recording fees, and home appraisal to determine current market value.

Consider if buying mortgage points can reduce the cost

You may be able to pay less on a new mortgage if you buy mortgage points. Some lenders allow you to pay discount points upfront to offer a better interest rate. Typically, 1% of the loan amount is one point. However, this option only saves money if you plan to stay in your home for a long time.

Consider a no-closing-cost refinance option

If you are struggling to pay the costs of refinancing a mortgage, rolling the fees into a new loan can be a good option. However, your lender may increase the interest rate, making the mortgage more expensive in the long term. Therefore, it’s usually best to pay the closing costs upfront.

How to Refinance a Mortgage With Bad Credit

Like any loan application, lenders require borrowers to have a good credit score to approve refinancing a mortgage. Therefore, it can be tricky to get a new mortgage if your credit history is less than ideal. 

However, certain strategies can help you secure a new deal. Here are a few:

• Improve your credit score: Getting your finances in order can improve your credit score. Bringing your score above 620 will help you refinance your mortgage.
• Shop around lenders: Some lenders may give loans to homeowners with a score of below 620. However, you typically must show other ways that you are creditworthy.
• FHA loan: You can refinance an FHA loan into an FHA Streamline Refinance without the usual credit check.
• Apply with a non-occupying cosigner: If you struggle to refinance your mortgage due to bad credit, applying with a co-client could be a good solution. The lender also considers their monthly income, assets, and credit score during the application process.

The Cost to Refinance a Mortgage—Conclusion

Refinancing a mortgage can save you thousands of dollars over time. A refinance can be a useful financial strategy to get lower interest rates, pay off a mortgage faster, or consolidate debt. In addition, you can use a cash-out refinance to access equity. Refinancing is also helpful if you have trouble making payments or want to eliminate premiums on mortgage insurance.

How much does it cost to refinance a mortgage? That depends on your lender’s closing costs, fees, and interest rates. Generally, you must pay between 2% and 6% of the loan principal in closing expenses. Therefore, strategies to lower closing costs can be a wise investment move to help secure your financial position.

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Mortgage rates have been trending upward since last March when the Federal Reserve began tightening the reins on inflation. Last November, they even hit a 20-year high, clocking in at over 7% on the typical 30-year loan. Now, less than a year later, they’ve broken that record again, notching yet another two-decade high at 7.23% as of Aug. 24. 

Historically, that’s not the highest rate we’ve ever seen, but compared to the record-low rates of just two years ago, it’s quite the about-face for anyone looking to buy a house. In fact, according to Redfin, as of July 30 the typical homebuyer’s monthly mortgage payment is now up 19% compared to just a year ago.

The question is this: How much worse can it get? And is there any hope for lower rates on the horizon? Here’s the scoop.

A Double Whammy for Buyers

If you’re looking to purchase a property anytime soon, high mortgage rates only add to an already challenging situation. For one, inventory is incredibly low, and with 80% of homeowners having a current mortgage rate of 5% or less, according to Zillow, the likelihood of much existing inventory hitting the market is pretty low—at least until rates drop some.

According to a recent Zillow survey, homeowners with rates under 5% are half as likely to sell their homes as those with rates above that threshold, essentially locking up a good portion of that existing inventory. (Total for-sale inventory fell 19% in July, according to Redfin, and new listings were down over 20%.) 

This, of course, trickles down to home prices. With such low inventory, buyers are forced to compete for the few options out there—keeping prices elevated until something finally shifts. 

According to the most recent Real House Price Index from First American, consumer homebuying power, defined as how much one can buy based on changes in income and mortgage rates, has now dropped 9% year over year. In addition, “real” home prices, which take into account mortgage rates and nominal home prices, are up a whopping 12% in the same period. 

As Mark Fleming, chief economist for First American, put it: “While many expected that a higher mortgage rate environment would prompt house prices to adjust downward, the lack of housing inventory amid a resilient economy is keeping a floor on how low prices can go.”

What’s Next?

We’re nearing the housing market’s slow season of winter and the holiday season, which is when home prices normally drop and competition wanes. According to most forecasts, we’re likely nearing the peak for rates, too. 

Fannie Mae’s latest forecast says the 30-year fixed-rate mortgage rate will dip to 6.6% by year’s end, while the Mortgage Bankers Association has its sights on a 6.2% average rate. Either way, it’d be an improvement for those looking to get in on the market—if they can find a property.

The trajectory of rates over the next few months will depend on what the latest economic indicators say, as well as how the Federal Reserve responds to them. As of now, the CME Group’s Fed Watch Tool shows there’s an around 80% chance that the Fed makes no changes to its benchmark rate next month. If that’s the case, rates could moderate or even drop later on in the year.

As for 2024, both Fannie and MBA expect a steady downtrend in rates, with MBA eyeing the lowest rate of the two—an average of 5%—by the end of the year. By 2025, we could see rates in the 4% range, according to the trade group. 

Until then, though, homebuyers and real estate investors will have to make do with rates that are quite a bit higher than just a year or two ago. That means getting creative with financing (adjustable-rate and shorter-term loans), negotiating buydowns, or using equity to make bigger down payments and, hopefully, qualify for a lower rate.

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Quickly find and compare investor-friendly lenders who specialize in your unique investing strategy. It’s fast, free, and easier than ever!

Orphe Divounguy, Zillow home loans senior economist, joins ‘The Exchange’ to discuss America’s housing affordability crisis, Zillow offering a one percent down payment loan program in Arizona, Zillow’s plan to roll out the home loan plan beyond Arizona.

Networking is an essential skill for entrepreneurs to learn because it generates business.

The term networking can become over complicated. It is simply starting and nurturing relationships which is something that humans do throughout life.

It doesn’t have to be difficult. Practice, repetition and following the tips below will help you build rewarding professional relationships wherever you are, whether that’s at work, a seminar, a party or on a flight.

Define Your Objectives.

Who do you want to meet and why? How many networking events will you commit to attending? Where will you go to network? How will you measure your progress? What do I want to get help with?

Asking yourself these powerful questions is a great place to start. You can’t hit a goal without a target, so be strategic about your time and your intentions.

Be Mindful Of Your Personal Brand

First impressions really do count. Before attending a networking event, think about how you will introduce yourself. Do you have an elevator pitch of around 30 seconds? If not, write and practice one. Make sure you are dressed well and feel confident in your appearance (whatever that means to you). Your personal brand also follows you online, so be mindful of how you want to show up.

Find A Networking Partner

Networking can feel scary. Introverts should find someone to attend events with to take the edge off. This tip is also very good if you know that you need help staying accountable. Having a networking partner will mean you’re both more likely to show up.

Be Vulnerable

Is anybody surprised that 75% of entrepreneurs have reported concerns for their mental health? Running a business is hard and can be a lonely road. This is not to say that you should treat networking as a free talking therapy, but be vulnerable about the problems in your industry or that you’re facing in business. Vulnerability builds deeper connections more quickly, and you never know if the person you’re talking to has the perfect solution to the issue that’s holding you back.

Take Advantage Of The Internet

LinkedIn is not just an online resume. It’s the most suited platform for building professional relationships, so make sure to interact with content, post your own content and send direct messages. Aside from LinkedIn, you can network on every other social media platform. Attending online workshops and being active in forums are other ways to meet people who share your interests.

Always Add Value

When you make a connection ask yourself two questions.

1. How can I help this person?
2. Who else in my network can help this person?

Openly sharing knowledge, contacts and opportunities to help others win will create a culture of generosity within the relationship. The other person will be more likely to help and introduce you to others when the time comes.

Listen

People tend to talk more than they listen. If you can learn to truly listen, you will gather so much information about people, the industries they are in and the professional problems they face. It is said that knowledge is power.

Follow Up

Networking doesn’t start until you follow up. Aim to send a text, email or direct message within 24 hours of meeting someone. Check in with them every 3 to 6 months to further nurture the relationship.

Review Your Progress

Six months after attending a networking event, review the relationships that were built. You might start to notice trends such as which types of events are the most beneficial to your networking goals. From this exercise, you can tailor your networking strategy if needed.

Take The Pressure Off

Building relationships is a skill that you have already been practicing for years, so try not to feel intimidated by the word networking or by trying to ‘do it right’. The more you network, the more confident you will get.

Networking is about establishing connections and creating a supportive community. Even if you don’t have a specific product or service to promote, your presence can still contribute to engaging conversations, the exchange of ideas, and potential collaborations.