Top of Mind Networks

Never. Ever. Let them walk away. Without a smile on their face. Here's why.

June 30, 2011 by · 1 Comment 

Last night I went out to dinner with my family and I’d like to tell you about my experience.  No real need for granular details here, but at the root of my issue was my meal.  I ordered what’s known in Israel as a “schwarma” sandwich for $16.  By the way, that link goes to a photo of a schawarma sandwich, but that is not the place I’m talking about in this blog post.

I took about 4 bites of my meal and I was done.  But I didn’t say a word.  Three different people at my table each tried the schawarma too.  And when they were done tasting it, I asked them each what they thought.  Each of them said the same thing I was thinking.  It was dried out and tasted like cardboard.

I rarely send food back at a restaurant because I think it puts the server in an uncomfortable position.  However, after our meal, I discreetly approached the restaurant owner and politely told him that I didn’t think the schawarma was up to his high standards.  His words back to me were that schawarmas are “always dry” and that’s why we give you the sauce on the side.  Here’s what he didn’t say or ask:

I’m sorry!

Is there anything else I can get you?  Are you still hungry?

Please allow me to take that off the bill for you!

How can we get better?

I’m in the middle of reading Atlas Shrugged and feel more strongly than ever that the restaurant owner has every right to handle the situation however he wants.  He owed me absolutely nothing.  I ordered a meal and he delivered it.

It’s also my right to never visit his restaurant again, right?

This blog post discusses something each of us has experienced hundreds of times in our purchasing lives.  But the angle I wish to take here relates to quick math and long term ROI.  We spent $100 on dinner last night and I think it’s safe to assume that we’d spend the same $100 each time we’d visit that restaurant.  Let’s assume that his margins are 100%, so last night the restaurateur earned $50 in profit.

Conservatively speaking, now let’s assume that I’d dine at his restaurant twice a year.  Finally, let’s assume I live in Highland Park for 10 years.  Now we have all the numbers we need to determine an LTV (LifeTime Value) for me – his customer:

Profit per visit = $50

Visits per year = 2

Number of Years over customer lifetime = 10

Quick math determines that I represent a $1,000 asset for this particular restaurant.  And that’s the number that each of us in business needs to calculate for each of our valued customers.  This is the #1 most critical number any mortgage professional should know.

Taking the LTV concept one step further:  what happens if I leave the restaurant with a big fat smile on my face?  Do I visit the restaurant 4 times a year instead of 2?  Do I order that extra bottle of wine next time and spend $150 per visit instead of $100?

And here’s the biggest variable of them all – one that “by rule” does not contribute to LTV, but philosophically and realistically is the biggest game changer of them all…

What happens if I turn on just one of my friends or family to this restaurant – and they become a customer too?  Doesn’t my LTV instantly double from $1,000 to $2,000?  And when we get to this point in our business, we aren’t using “addition” anymore.  We start using the good old “multiplication sign”.  The same multiplication sign that allowed Facebook to grow to 600 million members in less time than it took the average consumer to forget how to spell “My Space”.

The customer experience matters every single time for all of us.  Car washes.  Mortgage lenders.  Restaurants.

We all should think in terms of LTV – 100% of the time.  I am planning on going back to that restaurant next week and pulling up my laptop and sharing this article with the restaurant owner.  He may throw me out – I don’t know.  But I really want to help him get better – and I want to help you get better too.  If you think you’d like to start using the multiplication sign in your LTV numbers, let’s talk!

Sales Tips and Follow Up Requirements for Realtors and Loan Officers

May 22, 2011 by · 9 Comments 

Are you gaining new prospects, referral sources and market share?  Are you focused long term on gaining relationships and the actions for success?

Lucretius said, “Constant dripping hollows out a stone”

Are you hollowing out the stone for new referrals and prospects?

Better yet, do you follow through and follow up?

A huge majority of sales people don’t follow-up with their most recent customers let alone new prospects. In fact over 48% of sales people never follow-up with customers what-so-ever.

But the statistics tell us sales are made just:

  • 2% of the time on the first visit.
  • 3% of the time on the second visit.
  • 5% of the time on the third visit.
  • 10% of the time on the fourth contact.

A full 80% of sales are made on or after the fifth contact.

How many times are you visiting or contacting your potential prospects before you give up?

Think about this in your business.  Think about the last person to ask YOU for business.  It might be an insurance agent wanting referrals for your purchase clients or a home inspector looking to be suggested during the inspection period.   It might even be the local mortgage loan officer.  Do they expect your business the first time you meet just because they showed up at your door?

How many times would you want to talk to them before you trusted them with YOUR business?  How many times did they contact YOU before they either gave up and quit contacting you or they won your business?

How many times do you call or market to a new potential clients before you stop?

So how are salespeople doing?  Sadly 90% of salespeople make 3 or fewer contacts which is interesting since it has been proven that 80% of sales are completed after the 5th call or contact.

How do you compare?

If you REALLY want the business do not take no for an answer.  Take your prospects NO or indifference as a NOT YET because you have not built up enough trust and leverage to earn their business.  So what can you do?

Commit today to:

  • Send——–1 more hand written card
  • Set———-1 more coffee appointment
  • Deliver—–1 more letter of interest or personally memorable item
  • Make——–1 more phone call

Your prospects should trust that you follow up diligently and consistently with them to earn their business so they can feel confident that you will work that hard “ON” their business.  They should realize that you did the same to GET their business and stand out from the crowd.

Remember, “Constant dripping hollows out a stone.”

Start today and break through to new prospects.

Derek R. Egeberg

Branch Manager

Academy Mortgage Corporation

Why Can't Your Clients Have Their Cake and Eat It Too?

November 25, 2009 by · Leave a Comment 

Photo Source:  Flickr

Photo Source: Flickr (Lucky Penny Cakes)

Before I became a Mortgage CRM guy, I was just another borrower.  I remember distinctly a conversation I had with the loan officer I was using to finance a home in 2002.

Like many consumers, I’d been screwed in the past by an unscrupulous mortgage professional.  Hey, unfortunately, it happens.

I’d been referred to this guy by our builder.  He certainly seemed to know his stuff – but still, I wasn’t 100% comfortable with the process.  Rates were highly volatile and I wasn’t sure if I should be floating or locking.  My loan officer didn’t seem to have much of an opinion on the subject, which created even more uncertainty.  I’ll admit it, I called him about 3x over a 10-day period to try and elicit his advice.  During one of our conversations he told me something that still resonates to this day:

“Mark, there are three things I have to offer:  price, service and ______ .  Pick the two you want most and I can give you those, but you’re not going to get all three.”

I wish I could accurately remember what the third thing was but it’s not critical to my overall point.  This seemed somewhat reasonable at the time, although it never felt good.  This guy was busy and I was higher maintenance than most of his other clients.

When we stay in a 5-star resort, we know we’re getting top quality, but we’re also paying top dollar.  When we stay at Motel 6, we know we’re getting the bare bones, but that’s what we’re paying for.

But where’s the law that states we can’t give our clients an elite product at low prices?

Just because we could charge a lot more for Surefire doesn’t mean it’s the right choice for our business.  It’s a philosophical decision my partners and I made in the very beginning:  make it easy for people to say yes – and exceed their expectations.

The guy who financed that home for me ultimately got the deal and delivered what he told me he’d deliver.

1)  Was I satisfied?

Sure, I was satisfied.  Would I become a raving fan?  That’s the important question.

2)  Did he get the next deal?

Actually no, he didn’t.  We refinanced from a 30 year to a 15 year mortgage a couple years later and I started all over again.  It isn’t like we don’t have enough mortgage companies here in Atlanta.  In case you’re wondering – no, he didn’t deepen the relationship after we’d closed.  He didn’t follow up.

The Point:

Your job is not just to win the deal.  Well, not if you’re trying to find the holy grail – a residual-based business.  Your job is to exceed all expectations as often as humanly possible – not just say that you’re going to do it.  I’m not saying that you need to be the cheapest.  But I am saying that there comes a point down the road where the client will need another mortgage – and whether or not you get the call largely depends on whether you’re simply meeting expectations or letting your client have their cake and eat it too.

Rate Quote Reality

August 2, 2009 by · Leave a Comment 

No one in our industry slogging it out in the trenches everyday needs to be told that properly educating our prospects is both the most important thing we need to do while often also one of the more difficult tasks to boot.

It’s amazing, though not entirely surprising given the history of misleading advertising that we’re forced to contend with those companies that still publish rates as though they were as easy to choose as the gas you select at the pump.


30 Year Fixed Rates

5.50% / 0 Points

5.25% / 1 Point

5.00 2 / Points

Press the button and pump away.


Adverse market delivery charges, loan level price adjustments, credit scores, LTV, CLTV, HCLTV, rate term, limited or cash out,  DU refi plus, FHA, High Cost, conforming, jumbo, High Balance, subordinate liens or not, was that temporary limit extended or will it expire this December only to be extended again before being made permanent when the adopted step children Fannie and Freddie marry unofficially and officially move into the big house together to become part of “Govie Mae”…. home of the permanent 4% mortgage?

Ahhhhh yes…the simple days are done.  Yet the deceptive ads continue.

Unfortunately for some, we’ll never get the chance to speak with those that blindly trust in too good to be true ads. But hey, don’t you have an abundance of 45% LTV, dual W2 wage earners with 785 Fico’s, 18 years on the job, 12 months of reserves in their checking account, a single family house in an appreciating marketplace and a current rate high enough to pass the benefit test to justify refinancing and despite all this, the willingness to provide signed letters of explanation and documentation to prove that they really are who they say despite the maiden name from 18 years ago that appears as a name variant on their credit report that’s holding up their commitment? No? That’s too bad, there really is such an abundance of these out there and that of course justifies those ads doesn’t it?

Embellished a bit, tonque in cheek maybe? Yeah, but not by much.

Anyway, wanting to quickly yet effectively convey the reality of the marketplace to assure my prospects and yours with all they need to know about what we must contend with in the delivery of an honest and applicable rate quote, we’ve constructed the following flyer.


Click the image to download a copy for your own use with the compliments of Estate of Mind, Inc.

Email this to your prospects when they’re looking for that 4.00% rate and it just might save you some explanation time so you can invest it instead in running credit, researching value, analyzing documents and working up a proper and applicable analysis. The more our consumers learn the reality of the process, the more they’ll learn to ignore those that persist in the promotion of ignorance, deception, bait & switch tactics and foster general bad perceptions of our industry.

An Inspiring Originator Redefines "Roadside Assistance"

July 14, 2009 by · Leave a Comment 

Judah Hoover

Judah Hoover

The other day I was on Facebook and noticed an update from Top of Mind friend and all around great guy Judah Hoover of Signature Finance & Consulting in Harrisburg, PA.  It inspired me so I asked Judah if he’d allow me to share his story on the Top of Mind Blog.  Enjoy:

It is when things go wrong that we have the opportunity to really shine. Over the past few years I have been developing relationships with small, local community portfolio lenders. Local lenders are the best way to close non owner occ loans. But they are not always as flexible when it comes to place and time for settlement. This particular bank wanted to close the loan during normal business hours, in my office or theirs. Going to the borrowers’ home, place of work or off hour settlement was out of the question. But that is the trade off for lending in the name of an LLC with less then 4 months seasoning on the title after a complete rehab. To complicate matters the borrowers are growing their rental portfolio in the area but live over 2 hours away, so the trip to settlement was a over half a day out of their day, they had to bring over $20k to the table just to get out of the high interest loan they were in, the appraisal was cut, the lender wanted 1 year of payments to be held in a CD for extra security and on and on. But the borrowers were thrilled to be getting out of the private loan they were in.

This is when the real trouble started. I got a call 15 mins before settlement. The borrowers’ car had a major engine failure and they were sitting along the side of a busy highway. I was concerned that if we put off settlement it would be hard to get everything lined back up again… not to mention the turmoil the next few weeks would bring to the borrowers, being down one car, while they argued with the local mechanic about oil pan tightening procedures.

The banker and notary arrived. Now keep in mind local bankers are the textbook definition of “inside the box” thinkers. Fortunately I got a good bank rep that day. I explained that our borrowers were stranded, the tow-truck was on its way and we had a short window until they were taken to some dealership or repair station who knows were and we had to track them down again. The banker hesitated for a moment before laughing out loud, “You really want to have a road side settlement”. “That is exactly what I want to do”, I assured her. I packed everyone up before they could change their minds and off we went.

5 mins later I was standing in the hot mid-day sun by a busy highway while settlement happened in the air-conditioned car we drove to find them. The police arrived to see what was going on and I talked to them so the borrowers could keep signing. He was impressed when he heard the story and asked for one of my cards.  The tow-truck arrived just as they finished signing. They were very glad, as I said they really needed the loan.  I got a call a day later from them thanking me and to let me know they will be telling their friends and family they “must use Judah Hoover” when they refi or buy.  I have been working with the lender for a while and at a settlement with the same lender a day or so later the head of commercial lending said he is happy I am a Loan officer that works hard for my borrowers. When a lender knows you are sending them good loans they get approved so much easier.  It is when things go wrong that we have the opportunity to shine.

Do you have a story like this you’d like us to share on the Top of Mind Blog?  If so, please comment below and we’ll reach out to you right away.  Or if you’re shy, you can call me at 404-943-9910.

Overcoming Objections with Scott Evans: HVCC Edition

June 24, 2009 by · Leave a Comment 

Hi folks, it’s been another interesting month in the mortgage business.  Add to the underwriting delays, unexpected rate hikes and general frustrations of originating mortgages – HVCC has been an absolute nightmare.

When I saw the NAMB Call to Action, I took a few moments to document my personal HVCC experiences and sent out the following via email to my database.  I think it would be great if all of us did the same thing, because at the end of the day it’s the consumer who ends up losing out.

I am a mortgage broker in Atlanta Georgia. I have been in business for myself for 12 years now. I am writing to share some concerns about the implementation of HVCC that we have experienced since its implementation on May 1st. Let me highlight some of the larger issues:

1) The appraisals are taking significantly longer to be completed than when I could order my own. The consequence of this is that we can’t lock in our interest rates for the consumer until we have the report in our hand because a) we don’t know whether we would meet value and b) when we will actually receive the report (time frame). As you know the shorter the period we can lock the rate in, the better the rate we can obtain for the consumer. The worst part was that later in May when the interest rates spiked (literally overnight), many of our clients were not protected with interest rate locks and now may never be able to refinance.

2) The quality of the appraisers is a significant issue. We have had numerous complaints that the people are dressed inappropriately, take very little time to assess the house and are in general not professional. My understanding is that this stems from the fact that they are paid by the AMC’s, significantly less than what appraisers were being paid under the old system. Therefore, the good appraisers aren’t willing to work for that cheap, creating a system that breeds the retention of less experienced appraisers…or at a minimum, the good ones that really need the work; need to spend less time on each report to make similar money.

3) the most common complaint from real estate agents is that the appraisers don’t know the local area. They come from far and wide and in general have know idea about the neighborhoods, school districts and all the idiosyncrasies of the local area that affect value. Think about your own local neighborhood….if an appraiser came from 60 miles away, would they really be able to provide the best review of the comparable sales not knowing anything about your area???

4) The most frustrating thing for consumers is that they must pay upfront to “play the game”. Let take refinance transactions. Before HVCC, I would spend my own money (usually $25 per loan) to have my appraiser do what we call a “pencil search”. It would be a quick look at comparable sales to see if there was at least a chance of obtaining the value that we needed. They would either say, 1) won’t be an issue, 2) it is close to meeting value but I can’t say for sure or 3) there is no way we will be able to make value at this time. The benefit to the consumer by me providing this valuable service was that they at least knew whether it was worth spending the money on an appraisal. If it wasn’t going to meet value, why have them waste their money. If we weren’t sure, at least they knew it was a calculated risk. Under HVCC, it is like going to Las Vegas and sitting down to a craps table. You have know way to know what you’re going to get. In the last 45 days, I have had over 20 customers spend $300 – $400 for an appraisal, only to find out that it was useless.

5) If you feel like the appraiser made mistakes, the AMC’s will let you send in your concerns and they will have the appraiser revisit it. This is also a flawed system. Think about the average consumer. They don’t do this for a living so how are they supposed to come up with support to challenge an appraisal. Only if they happen to know a real estate agent that is a friend will they be able to produce any information that may be able to change the ultimate outcome. But because no one can talk to the appraiser directly, our limited experience with this is that the appraiser just works on justifying their position, not taking anything else into account. Think about it, what is the incentive for them to do anything but justify their original report. They don’t have to speak to anyone, so it is real easy to just list the reasons why the additional information wasn’t used and leave the report as is.

6) These reports were supposed to be “portable” according to Fannie Mae. Reality we have found is that they aren’t. I have 10 lenders we use as a mortgage broker. 3 of them will not accept appraisals that were not ordered through their AMC, the other 7 say they will. But here is the catch, the only way they will accept it is if we can provide a letter (on bank letterhead) saying that the appraisal was done in compliance with HVCC. We have yet to find a lender that will actually write a letter like this on letterhead. Even though all of the appraisal reports have disclosures that say they will, that apparently isn’t good enough. So once again, if we have to go in a different direction (and there are many good reasons why this may occur and be in my client’s best interest), the customer would be forced to pay for a 2nd appraisal and hope that that one still worked.

While I understand the intent of this new regulation, it is having and will continue to have, ongoing negative repercussions on consumers and home values in general. If we allow inexperienced appraisers with little local knowledge continue to providing these critical reports, there are far reaching consequences for the industry, consumers and the housing market in general. 

"I'll Hold Myself Accountable" – The Beginning of the End.

June 23, 2009 by · 5 Comments 

We have all said it, and for short snippets of time, we may have even done it.  My question – how’s  that workin’ for ya now!?  Don’t get me wrong – I don’t even have this nailed down myself.  In fact – disclaimer herethis post… yeah, I am writing for me

If the reader gets something out of this, uh, that is good too.

It is a noble and glorious thought that the mere love of our families, addictions [like living indoors, eating daily, etc.] and desire to grow are enough to take us where we want to go in our careers.  You would think – wouldn’t you?  I would!  What would being accountable to 2-3 other guys in the mortgage business bring to the table that my deep affection for my family would not?  The short answer is – I don’t know!  The slightly longer answer [with no greater insight, mind you] is that I DON’T KNOW BUT IT WORKS.

2009-06-23_fear_puppyFor some reason,accountability with people you respect, like, and trust can be the ‘magic bullet’ that many are searching for.  So why don’t more of us step up to the plate and become accountable to one another?



Whether it is fear of failure, fear of the unknown, fear of being vulnerable [i.e. being “found out” that you are human] or something few of us would admit to – fear of success, fear can be the biggest stumbling block to any action.  My advice? [Remember, this post is for me, not the reader] GET OVER YOURSELF!  You are not that big of a deal.  Suck it up punk!

The key to a successful accountability relationship, as I touched on earlier, is for it to be with people that you respect, like, and trust.  Without that – your results  may be less than you desire.  Why?  Because there needs to be internal pain for not performing or pulling your weight and that will ONLY work if you have to report lack-luster efforts to someone you care about.  This also leads in to why they must be people you trust.  Not only must you care about them – but they must care about you as well… meaning they will be firm but still support you.  [Don’t worry, this doesn’t mean you have to turn in your “man-card” – quite the contrary, actually.]  I am reminded of a segment out of a very popular book – you may have hear of it - the Bible, that I understand as applying to accountability.  It goes something like this;

“Put me on trial, Lord, Cross-examine me.  Test my motives and affections for I am constantly aware of your unfailing Love and I have lived according to Your Truth.”

This kind of vulnerability and accountability only works when you know those you are entrusting your ‘humanness’ to, have your best interest at heart.  Now there are two ways to do this – you can either throw money at it, or throw time at it… just pick one.


This is the ‘throw money at the need’ solution.  I personally have never really been coached, in the sense that I have paid someone to2009-06-23_accountability_chickens keep my feet to the fire.  The one exception is that I participated in a joint weekly call with Tim Davis and about 30 LOs.  This was a great thing to participate in and may be an inexpensive way for folks that have never been “coached” to see what it can be like.  Typically, however, due to mere numbers of participants, the personally attention is diminished and you won’t get the full impact of coaching. [The other side is you don’t have to pay the full freight either.]  Two coaches that I trust are Tim Davis and Victoria del Frate.

Accountability Teams

This is the ‘throw time at the need’ solution.  A team can consist of 2-5 players – anymore and I think you are diluting the impact.  Five is an absolute maximum.  Here is why it takes time for this solution to unfold.  First, YOU – cowboy – have to be the kind of person that people respect, like and trust.  Building that awareness with people that are worthy of being accountable with is not easy and is an investment that can only mature over time [Law of Incubation].  For the record, I have attempted being accountable to folks that fell completely flat.  You will too.  Expect it.  You first accountability group will not likely be the final one you end up with.  So what – start anyway.  The second reason this takes time… chemistry and likemindedness are difficult to find and even harder to maintain.  Once you find it – you will know – and will be forever better.

In conclusion, here is a small exercise.

“I, [insert name here], commit to myself to seek out those that I respect, like, and trust.  I am doing this [not I will do this]  in order to begin identifying those that can help hold me accountable for the things I should be doing anyway for Pete’s sake. [Yes, you have to say, “for Pete’s sake” or it won’t work.]  I have made it this far in a battered industry – and dog-gone-it I owe it to my peers, my family, and myself to be better than I am today.”

Go get ’em Tiger!

[Batteries not included]

New Podcast by Tim Davis!

June 17, 2009 by · Leave a Comment 

origmkcoahI just started a new free podcast for Today’s Loan Originator called The Originators Guide. Here is today’s episode and notes. Enjoy and go make a sale!

Setting proper expectations in today’s market

  1. You have to accept the current market
    1. It is what it is. Stop living in the past.
    2. Some will some won’t so what
  2. You have to be knowlegable about the current market, this builds your confidence
    1. This requires study from trusted sources
  3. You have to communicate clearly, politely, and with authority
    1. I like phone communication followed up with a written documents, then seared in with video
    2. Do Not talk industry language with clients. They will nod but they do not understand!
    3. Remember facts tell but stories sell. Use stories to illustrate your point!
    4. You MUST get EVERYONE’S buy in. the agents, the buyers and the sellers!
  4. Make sure you UNDERPROMISE and OVERDELIVER!
    1. This is no time for short rate locks to gain an extra 25
    2. Watch your good faith estimates!
    3. When you know that issues can come up build that into the time!
  5. You have to establish a frequent communication system
    1. You better be calling them long before they call you!

When You Yell Nobody Hears You

June 10, 2009 by · Leave a Comment 

I got this little nugget from my favorite new 30-year old show:  CBS Sunday Morning.  More on that in a moment, but first… here’s the full quote:

“When you yell nobody hears you. The best communicators have to live and present themselves in a peaceful manner.”

What a great quote.  Who coined it might surprise you:  Rosie O’Donnell.  It was her response when asked what she learned from her time on “The View”.

Yes, this person inspired me today.

Yes, this person inspired me today.

All I have to do is rewind my life 40 hours for a healthy dose of perspective.  The details aren’t important, suffice it to say that I let my frustrations build and get the better of me.  In retrospect, was my rant justified?  Absolutely.  But did it serve any purpose?  In other words, did it contribute toward the solution I wanted?  The answer:  probably not.

Here’s the deal, and I know all of us can relate to this…  We place the same expectations onto other people that we typically place on ourselves.  Thus, we spend a lot of our lives disappointed and frustrated.  Imagine the life of a great politician.  No matter how “successful” you become, half the people are gonna love you and the other half can’t stand you.  But your job is to build consensus to the best of your human ability.

Do you find yourself losing your temper with underwriters nowadays?  Or appraisal firms (thanks HVCC)?  It’s natural to get pissed – I really don’t blame you.  But if your end goal is to bring your deals to fruition, the challenge becomes channeling your frustration into the solution, not against the wave of obstacles facing you.  Easier said than done, but for me, writing it down like this is going to help me apply O’Donnell’s wise words next time a frustrating, even unjust, situation arises.

Now, back to CBS Sunday Morning.  If you’re sick of the ambulance chasing and fear mongering we’re getting from our traditional media, I’d encourage you to DVR this outstanding news magazine each Sunday Morning.  Here on the East Coast, it comes on at 9am and lasts an hour and a half.  I’ve found their stories to be diverse, thought provoking and above all – educational.  If you like 60 Minutes, you’ll like the Sunday Morning edition even more.  Just without the rambling nonsense of Andy Rooney (God love him, he’s still doin’ it!).

Overcoming Objections with Scott Evans: Am I Saving Enough to Justify Refinancing?

May 28, 2009 by · Leave a Comment 

I’ve been getting that question a lot lately, and I bet you have too! It’s certainly a very legitimate question. Interestingly, many customers are saving more (or less) than they realize for any number of reasons. For example:

The escrows they are paying monthly may be inaccurate.
You need to compare the principal and interest portion of their payment only.

They may have been in the loan for a number of years.
Therefore they’d be paying more on a monthly basis than if their loan was re-amortized.

And then there’s what I call the “invisible part”
Part of the monthly savings a client will realize is in the reduced interest, which obviously impacts their monthly cash flow. But when applicable, I also like to illustrate how with new terms the client begins paying more toward principal due to a lower rate. This is the portion a client typically doesn’t see because it doesn’t show up in their payment each month.

So those are a few examples of how many of us approach the issue. The question becomes: How do you get to the bottom line in a way that doesn’t completely confuse them? Here’s a step by step example of how I approach this:

  1. Take the loan amount and multiply it by the interest rate savings.  This gives them their annual interest savings.  Next…
  2. Divide that number by 12 to get the monthly interest savings.
  3. Take the total closing costs and divide it by the monthly interest savings.  This will determine the client’s pay back period.
  4. At this point, I have a discussion with my client about how long they plan on staying in their home.  Ultimately, this is how we determine, as a team, if it makes sense to refinance.

Let’s go ahead and try it with a simple example:

A client has a 5.75% rate on a $250,000 mortgage.  Let’s assume total closing costs are $3,500 and we can drop him to 4.75%.  A 1% reduction on a $250,000 loan will save the client $2,500 in interest in Year 1 alone (equal to $208/month).  Take the closing costs of $3,500, divide that by $208 (monthly interest savings) and you determine the client’s payback period is 17 months.

I especially like conducting this consultation at my office or over coffee somewhere convenient for them.  By collaborating together on the math, I find that I’m empowering my client to make a more educated decision.  It’s worked great for me over the years, and I hope this little tip helps you too.

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