2026 Mortgage Update: Lower Rates, ARMs Return, and When to Refi

20:50Jeff Welgan:Our advice on this has shifted here over the last few years. So, you know, when rates were up in the sevens and eights, I mean, it was a way to get the, you know, the deal to work in a lot of cases. And what we would do is build in seller credits. The max is up to 6 % on a lot of programs, especially on the DSCR side, which, you know, you build in 6 % of the purchase price and you can get the rate down pretty low. You know, whatever the floor rate was at that time. I mean, that can mean the difference between an 8 % rate and one that was down around 6%. So it made sense, especially if they had a longer term outlook with the property.

21:27Jeff Welgan:And the downside to this is and why our advice has shifted is because now we're in a downward trending market. Back then, there was no telling. I mean, there was a lot of fear that rates were going to continue to go up and that inflation was going to continue to increase. Now that we know that rates have come down and could potentially come down a little further, prepaying all of that interest and buying the rate down that far. If you end up refinancing that loan at any time in the first five to 10 years, you're leaving a lot of money on the table. And that just the benefit outweighs the or the risk outweighs the benefit now at this point.

22:00Jeff Welgan:I will say, though, where we are still trying to, you know, kind of find a middle ground on this, like once if we do hit a period where rates stay stagnant, let's say we stay in this range, you know, still building in maybe like a$5 ,000 seller credit on a purchase, a small one to help cover closing costs, minimize that upfront cost, maybe buy the rate down a little bit to increase cashflow. There's a good argument for that. And that's what I would recommend is, you know, explore your options. Look to see what a no point loan looks like. Look to see what building an extra$5 ,000 into the purchase price looks like, because we're going to go one of two ways and you want to be prepared either way.

22:34Jeff Welgan:If rates go up, then, hey, you're locked in, you're good. You don't have to worry about it, at least for the foreseeable future. If rates come down, you just don't want to be stuck in a loan that you've paid$20 ,000 in rate payments right now because it's a long timeline to recoup that initial cost, even with the tax benefits of being able to write off those points. I mean, you're still looking at probably a five to seven year timeline. And so, you know, the example I like to use, and it feels like we're kind of going into this right now, is that, you know, 2016 through 2019 time period where rates had come up to about five and a half.

23:10Jeff Welgan:And we thought rates were high then, a little bit of no was coming. But, you know, when rates did start to drop in 2020 and 2021, we implemented a refinance strategy that we've done numerous times over the years where as rates come down, every time our clients are saving, you know, 100, 150 bucks a month, we do a no closing cost loan. Oh, wow. And that way they're benefiting, you know, with the lower rates and lower payments and then not tacking on, you know, three to five thousand dollars worth of closing costs every time. And then eventually, you know, when rates did drop down into the twos, the way our clients were able to get rates down on the ones where they bought the rate down a little bit, did one last refinance at that time and never touched it again.

23:48Jeff Welgan:So the way it actually works from a fundamental standpoint on mortgages, where if you look at the par rate, which means no points, what we can do is raise the rate an eighth. We get a spread on the back end of the loan that usually, depending on the loan amount, it's based off of a percentage. We can then apply toward closing costs. And on a$300 ,000 loan, it's very easy to do by raising the rate an eighth or a quarter. And even larger loans, it's much easier. But smaller loans, it gets a little trickier because it's, again, all based off a percentage. Well, I want to ask you a little bit more about refinancing because that's a really important topic right now.

24:25But first, I should explain what points are. By the way, it's just an upfront cost you can pay when you're closing on a mortgage that will lower your interest rate. When you talk to a lender, they will give you usually like a grid, a table with different options. Like Jeff said, no points. That's going to be the cheapest. you buy some points, your interest rate will come down. Usually the break evens like six, seven, eight ish years. If you hold onto it, it can be worth it. But I have a calculator. It's free biggerpockets.com slash resources that allows you to put in some assumptions. The big question is always how long you're going to own the house, which is always a variable.

24:59But if you have an idea of how long you want to hold it, you can make these estimates for yourself. So definitely think about that. Before we move on though, Jeff, you know, what we've been talking about so far is buying down the points yourself. But given that we're in a buyer's market, are you seeing sellers buying down people's points? Or what are the trends with some of the concessions that buyers are able to extract on the financing side? Yeah.

25:24Jeff Welgan:And that was part of what I was talking about as far as the up to 6 % of the purchase price. So years ago, we would do, let's say, a$500 ,000 purchase price, build in 30 ,000, that's 6 % of 500 ,000 and offer 530 with a 30K credit to cover closing costs and buy the rate down. Well, now that's shifted. And so what we're seeing primarily is, you know, in this market, given the fact that it is a buyer's market, we're seeing a lot of sellers willing to negotiate and willing to work with our buyers. And so what we're typically recommending is building in more of like a five to$10 ,000 credit at the most.

26:02Jeff Welgan:And then that way, you can go into a deal, let's say at 500, offer 510 with a$10 ,000 seller credit and use that 10 ,000 to cover all of your closing costs. And then that way, you know, it keeps that money in your pocket and you can fund your next deal with it. Nice. And so most people are, you know, I know for a while, like two, one buy downs and three, two, one buy downs were popular, but now are people just buying down points? Yeah. So the problem is with the two, one and the three, one is that it's, it's user to lose it. So if you end up refinancing, you don't get that money back. Yeah. So we're still doing quite a few one ones where, you know, it's for the first year, it's one point lower than whatever the note rate is.

26:40Jeff Welgan:So let's just say if it's six and a half, you do a one one buy down that the seller pays for or you can pay, you know, there's flexibility with the one one where even the buyer can pay for it and buy the rate down. Basically, for the first 12 months, you're prepaying that interest. So your payment's going to be based off of a five and a half rate. And then it goes up to the note rate on the 13th month. But they're becoming less and less commonplace, I would say. I mean, I still hear people that are on our team that are doing those for their clients that are working primarily in the primary residence space.

27:13Jeff Welgan:But in the investment in second home space, I haven't done one in a while and I know we're not dealing with any frequency. Well, yeah. I mean, I think for most investors, if you're in a position where you have some leverage to negotiate, you're just better off getting the permanent buy down, right? So I think this is a good thing that everyone listening, if you're looking to acquire and build your portfolio right now, this is one of the benefits of being in a buyer's market is that you can extract these kinds of concessions that can significantly improve your cashflow. If you're getting a half point off your loan, something like that, that's can be hundreds of dollars a month.

27:49And these are things that your agent should be able to, not for every deal, but should be at least inquiring about and trying to negotiate if you're cashflow focused. I think this is a great tip for everyone listening right now. We got to take a quick break, but when we return more on which loan products you should be looking at, how to use buy downs and how to get the best possible turns for your Lex loan. The rise of the tech savvy investors here. You don't need a huge team or tons of overhead to manage rental properties, just the right tools. So I want to tell you about how I use RentReady to get ahead.

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31:11Welcome back to On the Market. Let's get back into it with Jeff Welgin. Jeff, let's turn our conversation to refinancing. You mentioned that refi activity is picking up. Is it mostly people who got mortgages that start with a seven or eight in the last couple of years? Or what are the trends you're seeing?

31:27Jeff Welgan:Primarily, yeah. I mean, these are the last few years. Everybody that's taken out loans that don't have prepayment penalties are looking to refinance now. And so that's been the majority. But there's still, you know, we're going into a period where, you know, we're seeing more layoffs and people have been needing money. And so we go through these periods where, you know, even clients that have lower rates, you know, twos, threes, fours, they're doing cash out refinances and, you know, to pay off debt. And when you look at it, when you actually do that blended rate calculation versus your, you know, 25 % credit card debt.

32:00And depending on, you know, you don't want to do this over$10 ,000, but if you're 100K in debt, I mean, it's worth taking a look at.

32:06Jeff Welgan:I always recommend people look at second mortgages first if they have a lower rate loan because my first and foremost, don't ever touch those loans if you don't absolutely have to. But also don't wait until you start falling behind on credit card payments and car payments to start doing something because then it becomes much more difficult. And the problem that occurs a lot of times with our clients that have more debt, they can't qualify for second mortgages in a lot of cases because the underwriting criteria is more stringent because they're going in second position and the increased risk. So just trying to find that balance.

32:41Jeff Welgan:But that's a lot of the other refinances and second mortgages that we've been seeing. And I think as rates continue to drop. Is that something you see across investors? Is that homeowners, everyone? Both. Both. Yeah. And it's not, don't get me wrong. This is not like leading up to 08, you know, that kind of a situation by any means, but we are starting to see more people. I mean, you've seen the employment numbers. I mean, there's some cracks and I mean, I don't think we have 15 % inflation coming anytime soon, like we were talking about before this, but I do think that we're probably going to start seeing some more layoffs and as, you know, unless the market really starts heating up again.

33:19Jeff Welgan:I mean, I think with the evolution of AI and everything that's going on right now, there's a big argument that we're going to see an uptick in unemployment here for the foreseeable future, which means people are going to need money. And from an investor standpoint, that means people are going to be motivated to sell. So, you know, going into this next, you know, let's call it year, two year, three year period. I think there's going to be a lot of opportunities ahead of us because there are going to be people that are transitioning out of all of these jobs that AI is slowly taking. And you're going to have a lot of people that need to sell homes, which creates opportunities for the people that are prepared and all the conversations we're having are, and this is not the time to get overextended.

33:57Jeff Welgan:I mean, be ready for the next cycle because it's coming. Yeah, I'm with you on that. I'm not super optimistic about the labor market these days. I think if you look beneath, you know, try and read between the lines, you see, especially like youth unemployment is really getting higher. I think, you know, we see a huge plunge in the number of job openings across the U.S., even though we're, layoffs, I think is the highest it's been since the Great Recession in January. There's a lot, even though the total unemployment number isn't bad, I think there's a lot of signs that it could get worse in the near term.

34:32Let's hope I'm wrong. But I think it makes sense to be prepared for that. Last question, Jeff, what about HELOCs? If you need cash, you talked about a second mortgage, is that what you mean? Do you see people using HELOCs? How do those terms compare to refi and how do you advise clients on using a line of credit these days? Yeah. I mean, if you have a rate below, let's call it five and a half, 6%, you definitely

34:59Jeff Welgan:want to take a look at your home equity line options. So the primary residence options are going to be your best first jumping off point because they're directly tied to Prime. Prime is currently at six and three quarters right now. And there's banks and credit unions out there that are doing free home equity lines where it's literally no closing costs, no appraisal fee because they do desktop appraisals and they service them. So they make the money on the servicing side, but that is the place that you're gonna wanna start for the cheapest money. And I mean, we're coming out of this period where the cost of capital has been as high as it is.

35:35Jeff Welgan:We're always looking for ways to keep the cost down. This is my best recommendation. You're not typically gonna get these from brokers or direct lenders like myself, full transparency, because we're not servicing them typically. We have lower rates on these, but you still have to pay the title fees, which can be a couple thousand dollars. So I always recommend primary residents, whoever you bank with, either in a regional bank or a credit union level, all of the big banks have stepped out of this space back in 23. And you can find out what's available. You can typically go up to about 80 % loan to value.

36:09Jeff Welgan:So you basically just take whatever your property's worth, multiply it by 80%, subtract out your first mortgage balance. And that's what you theoretically could qualify for on your primary residence. And then if that doesn't work, because the credit unions and regional banks have pretty tight underwriting criteria, it's all full dock loans. You know, it's going to be a, be ready for a more challenging process. It's not fast, but you know, hey, that comes at the cost. So that's the trade-off of a better rate and a free loan. But as far as additional options, so if that doesn't work, then look at second homes and investment properties.

36:46Jeff Welgan:Though they're available, home equity lines and closed end seconds, the rates are typically going to be started about a point higher and go higher than that than where the prime rate is. So where on a primary, if you've got great credit and you can qualify, you're going to be looking at a rate somewhere in the mid sixes. On investment properties, they're going to start somewhere in the mid to high sevens and go up from there, depending on what the LTV is. But most are going to cap out at about 75 % in that space. Yeah. I mean, I just think this is a good option. Whether it's because of a lifestyle need or you're just seeing opportunity right now.

37:20Personally, I would choose to take the HELOC, even if it's a slightly higher rate than giving up those fixed rate mortgages at 2%, 3%, 4%. That's something you're going to love to own for the next 25 years. And if you can find capital to grow your portfolio in a different way, like a HELOC or a second mortgage or private capital, even in most scenarios, I think that's probably a better option. So these are really good things to start looking at. And as Jeff said, just one thing to call out, these can take a while. So don't wait until you have a deal lined up to try and go figure this out. That's the beauty of a HELOC too.

37:53You don't have to draw on it until you need it. And so if you are getting into a time where you're either going to do an acquisition or you want to do a rehab or something, start before you think you need to give yourself a little bit of time. There's really no downside to doing it that way. So just something to think about. Jeff, this has been super helpful. Before we get out of here, any last advice to our audience about financing here in 2026?

38:17Jeff Welgan:Going back to what we originally talked about in the beginning, as far as the market cycle and where my industry is, what we're going to see, just to do a little forecasting here, we're going to go through the same cycle in my industry that we did back in about 2012 through 2014, where there's not going to be a lot of people in the industry, but once rates do drop and we see that refinance boom come, everybody's going to jump back in. We've lost over a quarter of a million employees or people in the industry due to this shift. And what occurs is that as soon as rates drop, everybody starts jumping back in, which can cause a lot of problems for real estate investors, because this space is the most challenging thing we can do as mortgage loan originators.

38:59Jeff Welgan:I mean, it's just The nuances and variability in the investor space is not like working with primary residents, homebuyers or veterans, things along those lines. So just keep in mind that when you guys are looking at whoever you're going to work with here, you're going to want to do your research, find out what your loan officer has been doing for the last five years. Have they been in the business? Those kinds of things. And you guys do a great job of vetting through the BiggerPockets Lender Finder. you guys really just want to make sure you know who you're talking to because we saw so many problems during that period coming out of the Great Recession where people would jump into the industry for a quick buck and didn't know what they were doing and deals are falling out, clients are losing deposits, you know, those types of things.

39:44Jeff Welgan:All the horror stories that we all have heard of. We're going to go through a period like that where it's going to be a free for all at some point here in the not too distant future. So just be prepared for that. And I really do your research on whoever you're working with. Especially in these times, like Jeff said, just focus on people who are going to shoot you straight, be honest with you, and is trying to build a long-term relationship and not just maximize on a single transaction. Absolutely. Well, Jeff, thank you so much for your help today and your insights. This was really beneficial. I think our audience will be really grateful to get these tips on how to find good financing for investors here in 2026.

40:20Thanks for joining us, Jeff.

40:21Jeff Welgan:Yeah, thanks, Dave. Thanks for having me back on. That's it for today's episode of On The Market. Big thanks to Jeff Welgin for breaking down the lending landscape for us. If you haven't already, make sure to subscribe to On The Market wherever you get your podcasts. Or if you prefer, you can subscribe to the On The Market YouTube channel. For BiggerPockets, I'm Dave Meyer. I'll see you next time. If you're a content creator, you know the struggle of picking between quality and quantity to grow your channel, especially if you're on a tight budget. But why not choose both? With Storyblocks, you get everything you need to create amazing videos fast.

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