Today, countless individuals are choosing to leave their jobs in search of a more fulfilling life. If you’re considering this path, there are two crucial steps to take before you hand in your resignation: negotiate a severance package and refinance your mortgage. These steps can significantly bolster your financial situation as you transition into the next phase of your life.
Let’s be clear: it’s essential to refinance your mortgage before you quit your job. Once you’re unemployed, lenders will view you as a risk. Unless you have a substantial amount of assets or a steady freelance income for at least two years, it’s unlikely you’ll secure a loan.
I learned this lesson firsthand back in January 2012 when I suspected I’d be leaving my job soon. I’d been with my company for 11 years and was ready to strike out on my own. Knowing this, I aimed to reduce my expenses as much as possible before taking the plunge. My mortgage was one of my most significant recurring costs, and even though my rate had dropped from 5.75% to 2.625% over eight years, it was still a hefty monthly expense.
When the 10-year treasury yield fell to 1.85%, I contacted my bank to explore my options. They offered me a 5/1 ARM rate of 2.625% with no cost or cash outlay. The process took about 100 days, but it was worth it.
Here’s why it’s crucial to refinance your mortgage before leaving your job:
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Lenders need proof of a steady paycheck. Without evidence of consistent income, it’s unlikely your mortgage will be approved.
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Your income and expenses will be unpredictable once you quit. Even with a conservative budget, unexpected costs can arise.
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If you find a new job, banks usually want to see a year of employment before granting a loan.
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Government regulations make it challenging for banks to be flexible.
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Refinancing can lower your risk of default, protecting your credit score and your home.
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If you’re an independent contractor, your income only counts if you’ve been earning for at least two years.
Once you’re unemployed, banks will view you as invisible. Regardless of your credit score or loyalty to the bank, without a job, it’s nearly impossible to get a mortgage or refinance one.
So, before you quit your job, make sure to refinance your mortgage. It’s a crucial step in securing your financial future.
