by Grant W. Kehres* | Posted 09/18/2010
A great article appeared in this weekend’s edition of The Wall Street Journal that concludes the refinance tools on most banks, mortgage broker and “lead generator” websites are filled with conflicts of interest or simplistic formulas that lead to refinance sooner and at higher cost than optimal for their prospective customers. (See Real Estate Myth #4)
These websites typically take a simplistic approach, apply rules of thumb, and fail to consider the factors that make you an individual, such as your tax rate, inflation expectations, how long you plan to live in the house and the opportunity cost of paying closing costs rather than investing in stock, bonds or other investments. Their “one size fits all” approach often leads to refinance prematurely at higher rates than you might otherwise if a more sophisticated analysis were applied.
The best refinance calculator appears to have been devised by two economists from the Federal Reserve and one from Harvard University, professor David Laibson. Their analysis is based upon a formula using stochastic calculus and takes into account loan size, your marginal income tax rate, the expected inflation rate over the life of the loan, how long you intend to remain in the house and other sophisticated factors.
Stochastic calculus not your strong suit? For an unbiased analysis of whether or not its time to refinance, call our office for a free analysis of your situation. We’ve never been owned or controlled by any bank, mortgage broker or real estate company. For more than 32 years, the independence of our office and our fiduciary duty to our clients has been putting your best interests first.