Ask the Expert

by Dave Hershman03 Oct 2018

With rates up since last year, I have several clients who are waiting for rates to come down before they either purchase or refinance. How do I get them off the fence? —Elissa from Tennessee

Even though we are in a purchase market, many of the refinances we are handling will have more of a sense of urgency because they are not straight "rate and term." There is generally not a sense of urgency with a refinance -- unless they are using their equity for home improvements, to buy a car, pay for college, consolidate debts or some other urgent purpose. 

For many refinances, we will need to make them understand about the opportunity costs of waiting. What does that mean? In a simple hypothetical example, if someone could save $300 per month by refinancing, they lose $300 each month that they wait. So, if they wait for six months, they have lost $1,800 in opportunity cost. Even if rates come down (only one of three possibilities) and they save another $100 per month, it will now take an extra 18 months just to break even on the waiting. This is an important concept which you must teach to help get people off the fence. Like a stock which has risen, they are in a profit situation. If rates stay the same or go up--they lose some or all of their profits. If rates do not go down quickly or precipitously, they can lose their gains as well.

Of course, the simple example applies mainly to a rate and term refinance in which they are lowering their monthly payment. But you can extrapolate this concept to other types of refinances as well. For example, if they are consolidating debts, they may be saving $500 per month. Or if they are moving to a 15 year, you can show them how much money it will cost them to wait -- in terms of lost equity savings. Even if they wait on home improvements, the costs of the project could rise. Each situation is different. Your task is not to make a decision for your clients but to show them the economic consequences of their actions, or in this case, in-actions.   Dave

Dave Hershman has been the leading author and a top speaker for the industry for decades with six books authored and hundreds of articles published. His website is If you have a reaction to this commentary or another question you would like answered in this column? Email Dave directly at