← The Clark Howard Podcast
The Clark Howard Podcast
12.10.25 Mortgage Refinance Guidelines / Switching Banks - Easier Than You Think
00:33:35
Mortgage Refinance Guidelines / Switching Banks - Easier Than You Think
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- [00:00]
Sponsor/Announcer
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Clark Howard
It's great to have you here on the Clark Howard Show. You know, our mission is to serve you with advice and information that empowers you to make better financial decisions in your life. Today. Should you refinance your mortgage? A question I have not posed in so many years. I cannot even think how many years ago it was that that was a question that I was going to answer. Also, are you with what I call a giant monster mega bank? Do you know what that is? That's Chase, Citibank, Wells Fargo, bank of America. These four banks have over 50% of the banking market in the United States, a market that has more than a thousand banks. But four of them account for more than half of banking in the U.S. problem is, you're with one of the big four. Are you with what's known as a big regional bank or super regional? You're probably paying fees and not getting much on your money when you don't have to. I'm going to talk to you about how people are migrating their money in a way that's comfortable for them. So mortgage rates were so crazy low for a number of years because the Federal Reserve was using extraordinary powers to suppress what people could earn on savings and what people had to pay on loans to stave off another Great Depression. Central bankers in the US and the rest of the developed world were all coordinating after the banking scandals led to the Great Recession and the housing bust here and problems overseas to try to keep the economy from continuing to spiral down in the Great Recession. They did all kinds of things that were out of the ordinary, and that's how people ended up with mortgages in the twos, threes and fours. So once the crisis passed and mortgage rates resume more, let's call it normalization, and then we've had the inflation the last many years, mortgage rates, as you know, went from being in the twos, threes and fours into the sevens. Well now, because of the economy slowing down, perhaps half the states in the country are now in recession. The jobless numbers are rising, initial applications for unemployment rising. We are in a lower gear economically. Mortgage rates are falling. Just market forces, not any government intervention. So if you are someone who bought a home with interest rates in the sevens plus you have an opportunity to refi today, but only if you fit a narrow set of criteria and that is you can take out a 15 year loan at about five and a half percent. So who would this work for? This is why it's narrow. You've got to have meaningful equity in the home, which means it had to be someone who put in a good down payment when you bought that home with the ugly 7% plus interest rate. And you can afford the payment on a 15 year loan instead of, let's say you've got 27 years left or 28 years left on your 7 +% mortgage, you'd be going to a 15, getting you out of debt much quicker at a lower interest rate. But your payment would be somewhat equivalent to what you have now, maybe a nudge higher. So you'd have to be able to afford that. So that's why it keeps narrowing who this would work for. But yes, it would make sense. And you shop it around because lenders have so little mortgage activity right now that they are doing a better job competing in the marketplace to get what little business is out there. So if you are someone who fits those check marks, I said then you want to shop it and look at refi. And the good news is because of all the competition over a much smaller pool of loans, you will probably have less costs involved in originating that loan than you would have otherwise. And interest rates are very hard to predict, particularly in the shorter term. But the odds are pretty favorable because of a slowing economy that the mortgage rates could go lower yet from here. So how do you know when it's the right time? When it's clear that you will save a meaningful amount of money by doing the refi. That's your time. And if rates were somehow to go significantly lower, you just refi again.
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Caller/Listener
Krista okay, here are some questions that came in for you@clark.com Ask Seth in Michigan says while applying for a mortgage, my credit union encouraged me to consider a 10 year balloon mortgage with an interest rate of 4.99%. They have verbally assured me that it's amortized over 30 years and that they automatically issue a new balloon mortgage every 10 years at or below the starting rate 4.99 who can make that promise? Right. That sounds crazy. However, they said they're unable to reflect this arrangement on paper since the program is a special product offered by the credit union. Can I trust this program of theirs or should I assume they're setting me up with normal Bloom mortgage? It's a starter home for me, so I'll likely sell before the 10 year mark anyway. But plans can change and I'm afraid of getting left out to dry when year 10 rolls around.
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Clark Howard
Right. There's so much to unpack with Seth. I don't know what to say. Right. First of all, how can a credit union have a loan that is so much cheaper than you'd find in normal routine looking for a loan. And I didn't even mention when I was talking about refi, how valuable it is, particularly if you're a member of a big credit union to see what they're offering on a refi of your existing loan. Because many credit unions, not I wouldn't say most are all, but many, hold loans in what's known as portfolio. Banks don't. As a general rule, banks retail alone and then sell it off immediately to an investor. So they have to meet all kinds of rules set out by Fannie Mae and Freddie Mac. A lot of credit unions hold loans on their own books. They bear the risk of that loan holding it in what they call in the industry in portfolio. So that's why credit unions can do all kinds of oddball kind of mortgage loans that you're not likely to find elsewhere. So yeah, so they're offering you a loan, 30 year amortization, meaning the payments are, is if the loan was 30 years but setting the rate at just under 5%, eye catching number today, 4.99%. It's a great deal. But the promise that you could do a new balloon mortgage in 10 years that would carry a rate no higher than 4.99. But just trust us on this, that's not in writing. You cannot take that to the bank or the credit union.
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Caller/Listener
Bizarre.
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Clark Howard
It is not something you can trust at all unless it is in writing.
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Caller/Listener
Right.
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Clark Howard
If it's being held in portfolio by the credit union, there's no reason that this special product could not have in writing that they will refi you in 10 years at 4.99 or less. They're not saying that the only thing you can Trust is in 10 years, whatever rates are and whatever financial conditions are, you'll have to refi at that time. Because what a balloon means is remember you're only making payments as if it's a 30 year loan. So in 10 years you're still going to owe a ton of the balance if you don't come up with it. They take your home if you can't successfully refi so you need more in writing, Seth and and I really wonder.
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Caller/Listener
If you shouldn't if you haven't talked to another person at this credit union. I would just because it sounds like this person doesn't know what they're talking about. Especially if they keep writing that just.
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Clark Howard
Did not make I'd make sure you're.
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Caller/Listener
Even really talking to someone from that credit union. It just is so bizarre. Okay. John in California says I see a lot of platforms that allow landlords to collect rent payments, but there are four to seven day processing delays. Is there any reason I should not just give my tenant a routing and account number for an account that is set up only for collecting rent and then have them send it ach to me? Thank you from a dedicated Clarky and Wessie.
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Clark Howard
Well, thank you for that. And John, so here's the story. As a small landlord, you don't have the easiest ability to set up ach. Your tenant cannot just ach to you. Your tenant can set up bill pay through their financial institution and send you money that way. But when they send it to a small landlord, to an individual, usually what's going to happen is something from 1975, they're going to print out a check at your tenant's bank and they're going to mail it to you, which I've explained in many ways many times is a terrible security risk, a really bad idea. So using one of those platforms, I mean it's not the end of the world if you're getting your money. Usually it is. And you said four to seven days. It's usually in three to four banking days, which then you throw in the weekend. It can end up being in the worst case, as long as a week. But I think that's a safer alternative for both your tenant and for you. And the other thing you can do is for your protection, not so much for your tenant is receive the money from Venmo or Cash App. Many landlords now get paid that way. Small landlords get paid by their tenants that way. If your tenant was calling me, John, I'd say to them they should set up a separate account to send that money because the risks involved in lack of consumer protections with Venmo and Cash App and especially Big Bad Sell. But the electronic methods are superior to Any thing that would end up generating a paper check.
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Caller/Listener
Rene in New Mexico says I froze my credit reports back in 2011 thanks to Clark's advice. This year I had to temporarily unfreeze them as a part of a mortgage application process. Back in 2011, I was given pins for all the accounts. This time around, I was asked to create accounts and passwords. None of them asked for the old pins. At the time they were issued. I was instructed more or less to guard them with my life. Now it looks like they aren't even needed. Can I shred all of my printouts, including the ones that I stashed in my safety deposit box? Thanks. And P.S. all my accounts were still frozen. Adding a temporary thought was easy.
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Clark Howard
Okay, Renee, I'll give you the backstory on this. So when credit freeze first became law, first in the state of California and spread state by state, and then there was the national law for credit freeze, the credit bureaus came up with this pen code system, and they would send you this pen code. It wasn't one that you created in your own head. That would be one you could remember. They were usually these long numbers and life happens and people overwhelmingly, I don't know if it was 80% of people, 90%, whatever, some percent people lost their pens over time and it created labor cost and administrative nightmare for the credit bureaus. So they got rid of the pen, and now they have accounts you have to set up just like you described. So the pen codes you can just throw away. I have a relative who cannot get one of her three credit reports thawed because she's moved several times over the years and they don't use the pen anymore. And when she tries to set up an account and then be able to freeze and thaw her credit, it won't let her because all the challenge stuff from her original freeze is no longer valid. So she. She calls the credit bureau and gets some contract person who knows where in the world, and she's never able to get it cleared up. I mean, it's just amazing that in her case, the credit freeze works so well. It's freezing her out. But credit freeze is an easier thing to set up now and an easier thing to temporarily thaw when you need to. If you haven't set up credit freeze yet, take you less than 15 minutes, set it up with all three bureaus. Get it done. Because our Social Security numbers and personal information are out there everywhere. And it's not a foolproof line of defense, but it's the best we got. Coming up ahead you know it's not the best. We got banks ripping you and me off with junk fee after junk fee after junk fee and then on money we save with them paying us so little, it's basically nothing. But it's so hard to change banks really. I got some suggestions for you coming up.
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Sponsor/Announcer
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Clark Howard
Stitch has finally landed on Disney.
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Clark Howard
At home with your ohana. Be good for one second you were the stent. Lilo and Stitch is verified hot on Rotten Tomatoes with an audience score of 93%. Wow.
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Caller/Listener
Stitch also cute and fluffy.
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Clark Howard
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Clark Howard
So there was an expression that was used a lot during the banking scandals back in the OOs where the bankers were referred to as banksters. And none of the banksters that broke the law with just a tiny few exceptions ever went to prison. And the reality today is best I can tell, banks are being above board and being much more decent than they were. And they're not committing crimes left and right. And that's great news. But we've also had a huge change in the banking landscape as a result of the banking scandal. We've had enormous consolidation and banks are becoming more and more impersonal and larger and larger. And as I mentioned at the beginning of this podcast and YouTube show, you got the four giant monster mega banks that are now more than half of banking in the United States. And then you have the next block known as regionals or super regionals that are racing as fast as they can to bulk up, merge up, because they're stuck betwixt in between. They don't know who their customers are, they're not personal, they don't offer better deals, and they're not big enough to be able to compete on a national basis with the giant monster mega banks. So we're going to end up probably over the next 10 years with almost all banking done by somewhere 10 or less banks in the United States. That's where we're headed. But at the same time, we'll still have. It's going to be like a barbell, because at the other extreme, we're going to have an equal and opposite reaction. There's going to be a real need in the marketplace, particularly for small businesses, to have local banks. Getting back to banks that serve what's known as Main street, that serve the small businesses you may go into any day or every day. And so we're going to lose. That middle is just going to hollow out and vanish. But what's clear with the regional super regionals and the four giant monster megabanks is they're not your wallet's friend. They're not. That's not the business they're in. They're hulking giant impersonal bureaucracies that charge fees. They wake up every day figuring out what fee they can charge you and how little they can pay you on the money you give them in savings accounts or CDs. So you get handcuffed to these institutions and you feel like it's too hard to exit from them because you got this you do with them, that you do with them, the other you do with them. So do what more and more people are doing. There's even a term for it that the banks talk about behind our backs, where they don't realize somebody's slowly evaporating from them who they really valued as a customer because they were a good profit center. It's called soft switching. And so you, you test the waters a little. You open a savings account with an online bank or a credit union where you're getting a better deal and no fees. And then you realize, hey, that's pretty good. And then maybe the next thing you do is you open a CD with one of them. And then maybe the next thing is you get your vehicle loan from them, not from that giant monster mega bank or that regional. And then you think, well, you know what, they're going to save me a quarter point on the interest on that vehicle loan if I open a checking account. So it's happening bit by bit, a war of attrition where you gradually get out of bank abuse and you start treating yourself and your wallet better. So don't look at it as too hard. Take baby steps incrementally, step by step. You don't have to let that big bank eat up your wallet. It's your wallet and you want it to grow. And by the way, if you have a lot of money, you want to look at doing your banking kind of stuff with Schwab or Fidelity. And now Vanguard has come up with a quasi semi financial account for people's assets as well. Any of the three will treat you better than any of the four giant monster mega banks and certainly the as well any of the wannabe super regionals that hope to be in the giant monster mega bank club. You think the American Bankers association have.
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Caller/Listener
Me come speak at their annual convention.
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Clark Howard
Yeah. Tell them how much I love them.
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Caller/Listener
Okay. Bob in Florida wrote to you, Clark, and he said for the past few years I've noticed banks and credit unions are building new buildings. Some are names I've never heard of. When they open, there are a few cars in their lots or drive ups. Do you know what is going on with banking becoming more and more online and credit versus cash? It doesn't make sense that they would be building brick and mortar.
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Clark Howard
Sure.
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Caller/Listener
The only thing I can think of is that they're making so much money that they're buying real estate masquerading as bank locations. I've wondered this too.
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Clark Howard
Okay, so what's going on is if you live in a metro area and let's say I'm a bank, that is a big bank, but I don't have branches in your metro area. I'm not going to think of them as somebody to do anything with. I might get a credit card from them, but that's really all I would do. So banks look at having a strategic number of branches in a market as kind of a Billboard, a calling card that says, hey, we're here, we're in your hometown. And it's a marketing expense. You go by those branches. You're right, Bob. There's nobody at them. And the branches tend to be smaller now. There's not a lot going on in them. But what they do hope to do with those branches, one of the things that particularly the, the bigger banks want is they want your deposits because they pay you essentially nothing on your savings. They then lend out at much higher rates. It's the cheapest money they can attract. So the branch is building them with technology. Saying you don't need them really is to create that mind space that yeah, this bank's in our market. Maybe I should go in and see what they'll offer me on a savings account or cd. And then they pay you way below market and they lend it out at market and so the spread is very valuable to them.
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Caller/Listener
All right. Anonymous in Georgia says, my wife, my toddler and I are planning to go on a Disney cruise. It's our first cruise ever. We're thinking about booking with a travel agent, but what would we consider before doing that? Or should we book directly or through Costco? There may be about 100 to $200 savings with the travel agent, although we get money back with Costco as executive members.
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Clark Howard
So Costco Travel is a huge seller of cruise cabins now in the country and they do rebate most of the commission to you. They give you money and shop card and all that. But working a cruise with Costco Travel is not for a first time or infrequent cruise booker because there's so much about booking a cruise that you're not going to know is a newbie at it. And Costco Travel is basically a no frills thing. You go on their website, you set up an account, was your regular Costco account. You pick out the Disney cruise you want, you book it, you pay them, you get the money back, you get no advice. You want a cruise specialist or a cruise agent, a cruise only agency. And this is not to save money, it's to improve the experience and know all the things that that knowledge based person, that cruise specialist is going to be able to provide to you. You know, if you get on that Disney cruise and you decide, wow, where have we been all these years? We love cruises. Or you get on that cruise and say, well that was nice, we're not doing that again, you're done. But if you love them over time you learn and you start buying cruises based on when you know the deals are and you go to a no frills outfit like Costco Travel or, or a cruise only agency that's high volume but in this case you want a human who loves them, loves cruises and knows everything about them.
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Caller/Listener
Yeah. Understands the different cabins, the locations of the cabins on the ship. There's, there are definitely things, there's a.
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Clark Howard
Lot of things that first timers, I'd say first, second, third cruise, after the third cruise you probably have enough savvy to start using a discounter but that's not where you are right now. And everybody I know who's gone on a Disney cruise with kids has loved the experience. I've never been willing to spend the money when my kids were younger to go on a Disney cruise. I'm just too cheap.
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Caller/Listener
David in Georgia says greetings from a fellow Central Michigan University alumni.
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Clark Howard
Home of the cheapowise. It's actually the chip.
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Caller/Listener
I earned my master's degree while on active duty in the US Air Force and the Air Force paid for it all. That's awesome. Anyway, my question for you is are we in a debt bubble or headed toward a debt bubble? My reason for asking is my very unscientific non AI observation is it seems as though many people are now up to their eyeballs and every kind of debt with so many living paycheck to paycheck. If we have a big round of layoffs they'll have no way of paying even the minimums. So defaults, repos and foreclosures go up. Then lenders start having big problems like in 2008. What are you seeing and am I overstating this?
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Clark Howard
You're not overstating it, but there's some nuance this time that's different than what we had in the banking scandals. So number one, the problems of the economy are so odd right now because we have more money in savings and money market accounts than we have ever had in the trillions and trillions and trillions of dollars. And I mentioned the other day that something about a phenomenon in the United States that high end hotels are packed and charging the highest rates they ever have. Economy hotels rates are crazy low right now as a general rule with very low occupancies right now. The economic split in the country is that people at the lower end of the of the pay scale are carrying very high levels of debt having been crushed by inflation and now being crushed by a not very good job market at all in the US right now. So what we have is a completely split economy where People in the top, roughly 30% of income earners are doing overwhelmingly, extremely well, too well to in the worst cases. Okay, then the rest of workers very heavily are really struggling. I was talking with somebody who had volunteered in a food bank recently, regularly volunteers, and they were exhausted from the last few times they volunteered because the demand of people coming for food was so much higher than it had been in the past. So, yeah, lenders are going bust. There's a big. There's been a financial news story, not a consumer news story, but a big lender in the vehicle business has gone bust and left a trail of mess. And there's going to be more lender failures that specialize in lending to people of moderate to lower incomes because people are wheezing financially at a certain, you know, at the lower side of the economy. But we don't have the conditions right now that could lead to a calamity like 2008. We don't have really loose lending standards. We don't have what were known as liars loans that were very popular back in the mid-2000s decade and the O's, I guess you call that. And so there are people that are hurting. There are people who do business with people that are hurting that are going to fail, no doubt, and there will be disruption from that, but nothing like we saw from the banking scandals and the Great Recession that followed that. So I feel terribly for people that are really, really struggling right now. It's hard. I mean, you hear about people working three or four jobs and still having trouble making ends meet by the end of the month. That's rough. And that's why we're in a pessimistic cycle right now in the United States. But we are not in a cycle that is financial Armageddon like we got into 17 years ago. As for you, thank you so much for your service to our great country in the U.S. air Force. And you said the Air Force paid for your degree, your master's at Central Michigan, IBM paid for mine because I was a bill collector at IBM and they paid my way through graduate school. And I am forever grateful to IBM for that cost free education I got by working there. And I hope that you've had a great week so far. And I want to tell you, coming up Friday, we have Clark Stinks. But I want to mention something else right now. This is our 35th year. We're in the midst of, of Clark's Christmas Kids. It's where we collect your donations to buy gifts for children in foster care. And this year we have roughly 20% more children that we're buying gifts for for Christmas than last year. And I'm asked a lot, why do we have 20% more? I don't know the factors behind it, but there's 20% more kids that we've been asked to get gifts for for Christmas morning. And I hope that if you have any money you can spare to help out a child who's not with his family this Christmas because they couldn't take care of the child. I mean, any of a number of different circumstances lead to an adult not being able to take care of a child under their roof. But if you can help these kids out by getting them Christmas, at least having the experience of Christmas, Christmas, Christmas morning. Please take a moment and go to ClarksChristmasKids.com and see how you can make a difference this Christmas and a little more than two weeks from now. Put a smile on the face of a child Christmas morning and know what we're about is you saving more, spending less, and avoiding getting ripped off. Remember, Friday, Clark stinks.