Overcoming Objections with Scott Evans: Am I Saving Enough to Justify Refinancing?
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:
- Take the loan amount and multiply it by the interest rate savings. This gives them their annual interest savings. Next…
- Divide that number by 12 to get the monthly interest savings.
- Take the total closing costs and divide it by the monthly interest savings. This will determine the client’s pay back period.
- 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.
May 28, 2009 by scottevans · Leave a Comment
Scott is the Founder and President of Family Mortgage of Georgia located in Marietta, GA. He has grown his business organically over the years by creating "raving fans" instead of "customers". His organic approach to marketing and database management has allowed Scott to build residual income from "mortgages under management".
