As predicted at the start of 2021, house prices are starting to soar across the states. So far, prices are up 8% this year, which is not far off the 10.3% increase forecast at the end of 2020. Continuous growth through Q3 (Jul-Sept) and Q4 (Oct-Dec) could see the latter come to fruition before long. In line with these trends, mortgage rates have stayed low as expected, but difficult economic conditions mean only those with excellent credit and strong personal financial situations are getting to make the most of it and MLOs are finding more business declined by lenders than usual.
It may seem like a losing battle. You have an ideal scene to paint for both buyers and sellers and it really doesn’t take much selling at all – who doesn’t want a mortgage rate of 2 percent? But, you still seem to be struggling to push business through to completion and get lenders to approve the applications you’re processing. What if we told you that changing your target could hold the answer? Homebuyers are not necessarily the only key to making the most of this current market – existing homeowners, however, are.
Why homeowners currently have the advantage
Homeowners looking to refinance their properties are a pool of potential clients you may not explore all too often. Everyone in the housing market is so focused on getting new contacts and finding the next best property, they forget they’re sitting on a pile of potential business in their contacts list. If you have a well-nurtured list of clients who trust you and would be happy to hear from you about the benefits of refinancing their home, it could be the easiest sale you make all morning. This is why we always stress the importance of automating your emails and reminders.
Historically low mortgage rates paired with a steady flow of new buyers and very little in the way of housing inventory to choose from have led house prices to continue to rise. Although at present, homebuyers are facing a major challenge in locating a good deal on a new home, existing owners are seeing large gains in their equity. In Q1 2021, CoreLogic analytics data revealed that the average borrower had gained over $33,400 in equity on their home, the highest in over 10 years.
How to sell the refinance option to your existing clients
The homeowners on your client list have a few options right now. With rates so low, and expected to only creep up as high as 3.3% through Q3, now is the time to refinance onto a more favorable interest rate or term, or simply take advantage of the additional equity in the property. This is called Cash-Out Refinancing and allows the property owner to release some of the equity in their home as cash to use as they wish.
The main areas you need to consider with your client are how much money they will save and if this is worth doing. Refinancing onto a better mortgage deal, for either rate or term, is only going to be of benefit if they intend to stay in the property long enough to make up the upfront costs required with refinancing your home. If so, then it’s pretty straightforward and an easy sell. The likelihood of facing rejected applications is lower than with a new purchase as they already own a home and have been paying a mortgage for a certain amount of time, hopefully without any defaults.
When looking at drawing down on the equity of the currently inflated market values, debt consolidation is a great use of the funds. Paying around 3 percent on the money as opposed to higher rates of unsecured funding – currently between 3 and 36 percent – is likely to save a lot in both interest and term. By exploring this option, it needs to be clear that your client will save enough money to make it worthwhile taking out additional finance secured against their property.
It is not usually recommended that equity release is utilized for personal events such as weddings and vacations, however, should the client be in a position that they require the funds and they will be financially better off taking it from their equity than another source, this is a great option to offer. Building personal relationships with your clients and knowing if they have kids planning a wedding or that they usually take an annual vacation are all tidbits of information that you should note in your sales pipeline, you never know when it may help your business.
Have you already contacted the homeowners in your client list? Let us know what kind of hurdles and triumphs you faced in the comments below!
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