Part of the problem is that it’s impossible to do this during periods of rapid changes in interest rates. That’s because retail banking — especially mortgage lending — is one of the few areas where the rules are rigged in favor of the customers and AGAINST the banks.
Case in point … There is no such thing as a fixed-rate mortgage. Sure, you can sign a mortgage with a 30-year amortization at a fixed interest rate. But you can always refinance that mortgage at any time. The lender doesn’t have this option. So at a time like this with rising interest rates, you have banks or mortgage bond holders sitting on mortgages like mine (less than two years into a 30-year mortgage at 3.1%) while the prevailing rates on mortgages have climbed up to the 7% range.
I have an open offer to my bank. I will pay the entire balance in full if they will accept 20 cents on the dollar. :-)
Excellent post.
Decades ago I was in a MBA course on banking.
The professor always warned us—when interest rates rise dump your bank stocks and if you work for a bank get out your resume.
I took a 5/15 ARM at 2%, knowing that I would refinance after the 5th year when the rate goes adjustable (based on LIBOR). Sure enough, as soon as the mortgage went adjustable, my rate was increased by the maximum 2% to 4%.
This was in March 2020, just before the COVID-19 madness began. I was able to do a loan modification (not a refinance) for the remaining 10 years at 2.625%. I could pay off the remaining balance today, but I'm making more money in interest on my portfolio.
-PJ
That is a very interesting idea! Are you serious? If so, will you let us/me know how that turns out? And what would be the tax implications for a loan forgiveness?