3.75 vs 4.00

User Forum Topic
Submitted by Sean19 on April 22, 2016 - 7:32pm

Hello,

I was offered 2 loans at 4.00% interest rate with 5% down and closing costs + misc funds coming in at around $15,000.

I was then offered a loan at 3.75% interest rate with 3% down but closing cost and other total close to $15,000 as well.

The loan value would be ~$200,000. I can put down $10,000 no problem. I feel like this loan company is asking me to put down only $6,000 (3%) and then taking that other percent in origination fees or closing cost that is about $4,000. I feel like it would be better for me to put that towards the principal so I can get rid of mortgage insurance quicker. Any advantage to the loan at %3.75 that I am not seeing.

Submitted by HLS on April 26, 2016 - 11:52am.

Thanks PLM,
I can take it... I'm only being 'beat up' by a few and it's just the semantics of what were discussing.

They don't know me and assume that I'm some scumbag who doesn't know what I'm talking about nor do they know how detailed my explanations are to anybody who wants to listen rather than argue.(or think they know it all)

I had a radio show in the San Diego market for over 3.5 years in a declining market, telling people to wait to buy AND counseling LOTS of people for FREE through foreclosures & short sales that I didn't make a penny on.

I guarantee that when I say NO COST, it's no cost.
ALL 3rd party fees get paid by the lender.
I'll gladly defend what I do.
I've never jerked anybody around or misled them about what their options were.
I've never told anyone that I have the lowest rates possible. There are probably a million websites for mortgage pricing. If you want to shop and get thrown around, have fun.

I've had dealings with several hundred people from this website, most are not posters.If there were any complaints, I've missed them. I only get beat up by those who don't know me.

Some people get angry or confused because a no cost loan doesn't mean no out of pocket.

If you do not refinance, you still have a payment due every month, in arrears for interest (+ principal)
That is due whether you refinance or not.
A no cost loan does not mean no out of pocket.
If your insurance is due, its not my fault.
You need to pay it whether you refi or not.

You still need to pay the things that need to be paid, but ALL costs incurred with refinancing are covered by a credit from the lender.

I have NEVER said that a lower rate was not available with a cost.
The example given in the link above is misleading and outdated, rates haven't been 6 to 6.50 in over 10 years.
A lot has changed in loan pricing since then.

I priced a $400,000 loan this morning for a borrower who is currently at 4.125%
3.75% NO COST PLUS $1700 credit back payment $1852
3.625% COST of $800 Payment = $1824
3.50% COST of $4300 Payment = $1796

The cost spread between 3.50% and 3.75% is $6000.
It saves $56 a month ($672 a year) in payment.
If it's worth it to you to spend $6000 today and save
$56 a month you can.
If you sell or refinance in the next 6 years you threw away some money.

Anybody can do the math (if thye know how).
I don't force anyone to get a no cost loan. What puzzles me is those who do nothing
when they can save at least .25% with a no cost loan and don't think it's worth it.

I have spoken to writers of major magazine articles who used incorrect data and I offered to clarify it for them and they refused because they didn't want
to admit they were wrong. The FACTS don't lie.

There is hundreds of millions of dollars being wasted in interest because the average person doesn't understand the true/best benefits of refinancing to a lower rate.

I'm happy to analyze anyone's situation for free.
I don't care if someone gets a no cost loan or wants to pay $6000 so they can save $56 a month. That's a personal decision. BUT don't tell me that there's no such thing as a no cost loan.

The key with ANY loan is what you are paying in interest. The borrower decides the term by adjusting their payments. Nobody forces a borrower to start over at 30 years.
You have a choice to decide if you want to pay to lower your rate OR lower your rate at no cost (which to me is a no-brainer if you can qualify)

The REAL tragedy is that many people do nothing because they read drivel and get bad advice from knuckleheads.

Submitted by no_such_reality on April 26, 2016 - 12:34pm.

flu wrote:
Yeah, I don't quite get what the issue is. If you want to refinance, you can either get a loan with no out of pocket payments with rate X or if you want to pay closing costs and points, you can get rate Y where Y is less than X.

There's nothing deceptive about this.

The concept is simple, the execution historically has been fraught with deception and poor ethics.

YSP still clouds the issue for the end consumer and obscures how much is really being paid for services particularly when tagged with the above, IMO.

Submitted by NotCranky on April 26, 2016 - 1:06pm.

it's the trolling. That's what the thread becomes. Troll Troll Troll , maybe both side of the argument, but make no mistake HLS is trolling, then some stooge inevitably comes on here and defends him , setting him up for the , thank you PLM and massive HLS is God pitch; by HLS. Troll Rinse lather repeat. Yea ,IMO somebody who does that looks like a used car salesman.
Poor HLS is not getting beat up. He's working it.

Submitted by harvey on April 26, 2016 - 1:45pm.

The "semantic" debate comes down to this: loans always have a cost. There are two components to the cost:

- The interest
- The transaction fees

The "no cost loans" that lenders are pitching simply move the cost of the transaction fees to the the interest rate. The lender will always charge a higher rate to compensate for their lost transaction costs. "No cost loans" do not eliminate costs, they simply move them around.

There are situations when that may be advantageous to make that trade. A "no cost loan" is an alternative and can be completely legitimate, despite its misleading name. However for anyone who plans to keep a property for many years, trading upfront costs for a higher rate is probably not going to see as much net benefit from a "no cost" refi as they would with a lower rate, "cost" refi.

In many situations where a "no cost" loan is good, a "cost" loan may be better.

Submitted by HLS on April 26, 2016 - 1:47pm.

no_such_reality wrote:

The concept is simple, the execution historically has been fraught with deception and poor ethics.

YSP still clouds the issue for the end consumer and obscures how much is really being paid for services particularly when tagged with the above, IMO.

Those days are long gone with BROKERS....
the process is highly regulated now.
If you are offered a loan with 100% clear terms, what your net cost is, whether you pay OR get no cost,
What is unclear about this ? What does YSP have to do with it ? Are you concerned about what someone is making regardless of what they are offering you ?

FYI
Banks & Direct lenders can screw you as they can manipulate their pricing.

Mortgage brokers are like Insurance brokers.
Lenders & Insurance companies control the pricing. Insurance agents don't discount the insurance company pricing nor do they charge you extra.
They get compensated by the insurance companies.

There are 2 kinds of mortgage BROKER compensation.
Lender paid OR borrower paid.
With lender paid the wholesale lender compensates us a % of the loan amount.
With borrower paid the borrower compensates the broker and gets the exact same pricing. It's HIGHLY regulated.

Whether you want a rate that is higher or lower doesn't affect BROKER compensation by 1 penny.
Any credits or cost is to/from the borrower.

The days of BROKERS benefiting from overcharging borrowers are long gone, although some brokers make a higher % than others.
Banks and direct lenders can still get away with things that a BROKER cannot.
Bank employees generally do not have access to true pricing. They only see the retail rates to offer consumers and have no idea about net pricing.
There is a difference between regulations for Banks/ Direct Lenders vs. Brokers

Submitted by HLS on April 26, 2016 - 2:07pm.

Bloggy,
In almost 9 years on this site, 99.9% of my posts are intended to helpful & be educational.
That's a far cry from trolling or asking for business.

If I get attacked by an argumentative stooge like you,
you bet I'm going to defend myself with facts, not ignorance or pretending that I know what I'm talking about.

There's no doubt in my mind that I've helped FAR more people on this site than you ever will have with your advice.
I've talked more people through understanding their loans that didn't come from me than you would ever imagine.

Frightening to think that people might get their mortgage advice from you.

Submitted by Coronita on April 26, 2016 - 2:45pm.

harvey wrote:
The "semantic" debate comes down to this: loans always have a cost. There are two components to the cost:

- The interest
- The transaction fees

The "no cost loans" that lenders are pitching simply move the cost of the transaction fees to the the interest rate. The lender will always charge a higher rate to compensate for their lost transaction costs. "No cost loans" do not eliminate costs, they simply move them around.

There are situations when that may be advantageous to make that trade. A "no cost loan" is an alternative and can be completely legitimate, despite its misleading name. However for anyone who plans to keep a property for many years, trading upfront costs for a higher rate is probably not going to see as much net benefit from a "no cost" refi as they would with a lower rate, "cost" refi.

In many situations where a "no cost" loan is good, a "cost" loan may be better.

Not really. As you have guessed I use to be a serial refinanced roughly every 2-3 years when rates fell more that 0.25%.
It really depends on the interest environment and your situation. When your at the start of 30 year loan almost all of your payments goes into interest so if rates on the new loan were significantly less, refinancing with a no cost loan you still came out ahead with no period to recover the loan. And in some cases, those low cost loans ended up rebating you several thousands of dollars. If you paid points or closing costs to lower your rate, chances are you got screwed because rates for those no cost loans ended up falling below that rate you paid points and closing costs on.

So, like I said it really depends ones personal situation whether a no cost loan or a loan with points/closing costs make sense.

In an environment when rates are rising or high, it might make sense to buy down your loan rates. In an environment when rates are low and flat or falling it probably makes more sense to have a no cost loan, since if rates fall even lower you can refi again and buying down a low rate loan probably makes less sense...and if rates don't fall again, you still got a better loan than before.

Also, if you plan on selling your house way before the loan term is up or end up paying it off early, paying points/closing costs is just wasting money.

Also, in some scenarios, no cost loans simply does not exist. My only loan left is a 30year for one condo. I had to pay closing costs because the loan balance and nature or the loan did not allow for a no cost option, and I shopped around. Then again, that loan I won't be refinancing because there is a no cost option and since its still way lower than the 8% ROI I get from the rent income. Which is one of the reasons why u haven't paid it off. It cash flows even with 30year.

Plus to pay off that mortgage, I would need to sell stock. That means I would have to take a capital gains tax hit on my stock. And then I pay off my rental... Which means my net rental income is more...which means I would need to pay even more taxes on my net income from the rental...and the two combined would push me into an even higher tax bracket along with my W2 paycheck that already puts me into bad tax bracket....Uh no thank you. I'll take anything that drives my rental investment costs up now to lower my rental income now and wait until my W2 is $0 before I want to realize more investment income elsewhere.

Its like 401k, deferring income until later when your paycheck income is less. Only its better than a 401k because there are a lot more variables to play with. The more variables and complicated it is, the better it is for you.

Submitted by harvey on April 26, 2016 - 2:59pm.

Lol, the kitchen sink analysis.

Submitted by Coronita on April 26, 2016 - 3:04pm.

harvey wrote:
Lol, the kitchen sink analysis.

I like to consider my options, plus I want to see if I can beat BG to see who can come up with the longest post on this thread. It's my new goal on Piggington. Did I succeed? Its kind of hard for me to type though on a tiny smartphone where I am.

Submitted by no_such_reality on April 26, 2016 - 3:34pm.

You can fix that W2 issue.

Every year you wage slave, is a year with your children you don't get back.

Submitted by Coronita on April 26, 2016 - 3:53pm.

no_such_reality wrote:
You can fix that W2 issue.

Every year you wage slave, is a year with your children you don't get back.

My wage slave is pretty relaxed at my new master.

Submitted by an on April 26, 2016 - 11:25pm.

I find it hilarious that we have a thread about no cost loan periodically on Pigg. I've been on both side of this argument. I started with buying down rates, thinking 1) there's no such thing as no cost loan, 2) 4.5% is the lowest it has been it many decades, so it can only go up from here.

Fast forward several years and many refi later, here's what I've learned: 1)I can't predict future rate any better than my guessing the lottery # 2) When rates were falling, I went through a couple of years of not having to pay property tax and refi-ing about every 6 months.

I'm now a firm believer and practitioner of "no cost loan". I'm actually refi-ing again right now, dropping my rate down by 1/8%, as well has having my insurance and property tax paid for. If rate drop again in 6 months by another 1/8%, I would do the exact same thing again. I will ring this cow dry until my rate is 0%. Until then, I will keep on refi-ing as soon as I can drop my rate by 1/8% and have my tax and insurance paid for.

Submitted by bearishgurl on April 26, 2016 - 5:14pm.

no_such_reality wrote:
flu wrote:
Yeah, I don't quite get what the issue is. If you want to refinance, you can either get a loan with no out of pocket payments with rate X or if you want to pay closing costs and points, you can get rate Y where Y is less than X.

There's nothing deceptive about this.

The concept is simple, the execution historically has been fraught with deception and poor ethics.

YSP still clouds the issue for the end consumer and obscures how much is really being paid for services particularly when tagged with the above, IMO.

NSR, escrows aren't "rocket science." In the absence of being in the middle of refi for purchasing RE, one is certainly free to call around and/or visit websites of local escrow companies, title companies who do business in your county and whichever lenders who have products you are interested in looking into. They and/or their site will TELL you how much their ALTA and CLTA rates are per $10K or $100K of your loan or purchase price, what is customarily paid in CA by the buyer and the seller or split between the two, typical escrow fees for your loan amount or purchase price, loan or buy-down fees, doc drawing fees, typical appraisal fees (whether in-house or contracted), even tax service fees and typical notary fees for your transaction! Upon shopping for mortgages, you should easily be able to see which lenders have a lot of "garbage charges" and who doesn't and the reasons why in each case.

In CA, all your ancillary fees are the SAME to you as the seller or buyer/borrower whether or not you even take out a purchase money mortgage or WHO contracts for them (seller's choice, buyer's choice, escrow company's choice (which may be a subsidiary of a title company), or the lender who is paying for all of it (providing it to their borrower-client "free").

If your lender provides all your ancillary services for "free," they are certainly going to exercise their right to contract with services of their choice and yes, they may have a financial stake in some of the service providers they opt to use. But ALL of these tasks still must get done, whoever does them, and, in this case, the borrower isn't paying for it. For example, there isn't that much difference in title insurance fees from one title company to another. One or two in each county have their own plants but every one of them has to get their info from the same horse's mouth .... that is, your county recorder and assessor's office.

The inner workings of YSP between lenders and boots-on-the-ground mortgage brokers, originators and bankers are not well understood or generally known to the public and it doesn't matter (except when they were an exorbitant 5-12% during the exotic mortgage, fog-a-mirror, get-a loan era). During those years, NINA mortgages were commonly (fraudulently) made to people with a known (to the mortgage broker) falsified mortgage application and supporting docs (often prepared for the lender's underwriter by the broker's own processor). This was all engineered to line the pockets of shady, greedy mortgage brokers when their clients agreed to the terms of exploding mortgages due to having bad credit or no credit and often needing "rescuing" from imminent foreclosure. Many of these mortgage brokers have since had their licenses suspended or revoked ... for good reason.

YSP is the same principle as buying a new vehicle from a dealer who is selling it to you for well under True Car and Edmund's price points for your area because the vehicle mfr will compensate them after the sale thru the back end (thru a bonus or "kickback"). As a new vehicle buyer, you don't CARE about this nor do you have any control over it! You only care about the terms of your OWN deal. These "bonuses" aren't well known or understood by the new vehicle-buying public but it doesn't matter, because, just as with mortgage brokers, mortgage bankers and lenders, that's the way the "system" is set up.

There is no free lunch. Someone is paying for your necessary services which you legally must have third parties perform in order to complete your RE transaction. It's actually a "good thing" that YSP's exist, because if they didn't, every single borrower would be paying for (or financing, on top of their P&I) their own closing costs. That's the way it used to be back in the dark ages ('80's and prior) before the use of YSP's began to be widespread. If you didn't have the cash to close, you weren't able to buy (or refi). Prospective buyers were not yet ready to buy until they saved enough for their downpayment AND closing costs.

Submitted by bearishgurl on April 26, 2016 - 5:25pm.

HLS wrote:
no_such_reality wrote:

The concept is simple, the execution historically has been fraught with deception and poor ethics.

YSP still clouds the issue for the end consumer and obscures how much is really being paid for services particularly when tagged with the above, IMO.

Those days are long gone with BROKERS....
the process is highly regulated now.
If you are offered a loan with 100% clear terms, what your net cost is, whether you pay OR get no cost,
What is unclear about this ? What does YSP have to do with it ? Are you concerned about what someone is making regardless of what they are offering you ?

FYI
Banks & Direct lenders can screw you as they can manipulate their pricing.

Mortgage brokers are like Insurance brokers.
Lenders & Insurance companies control the pricing. Insurance agents don't discount the insurance company pricing nor do they charge you extra.
They get compensated by the insurance companies.

There are 2 kinds of mortgage BROKER compensation.
Lender paid OR borrower paid.
With lender paid the wholesale lender compensates us a % of the loan amount.
With borrower paid the borrower compensates the broker and gets the exact same pricing. It's HIGHLY regulated.

Whether you want a rate that is higher or lower doesn't affect BROKER compensation by 1 penny.
Any credits or cost is to/from the borrower.

The days of BROKERS benefiting from overcharging borrowers are long gone, although some brokers make a higher % than others.
Banks and direct lenders can still get away with things that a BROKER cannot.
Bank employees generally do not have access to true pricing. They only see the retail rates to offer consumers and have no idea about net pricing.
There is a difference between regulations for Banks/ Direct Lenders vs. Brokers

I just saw this after responding to the same post. Well said with more (current) additions.

Submitted by PCinSD on April 26, 2016 - 5:36pm.

bearishgurl wrote:
no_such_reality wrote:
flu wrote:
Yeah, I don't quite get what the issue is. If you want to refinance, you can either get a loan with no out of pocket payments with rate X or if you want to pay closing costs and points, you can get rate Y where Y is less than X.

There's nothing deceptive about this.

The concept is simple, the execution historically has been fraught with deception and poor ethics.

YSP still clouds the issue for the end consumer and obscures how much is really being paid for services particularly when tagged with the above, IMO.

NSR, escrows aren't "rocket science." In the absence of being in the middle of refi for purchasing RE, one is certainly free to call around and/or visit websites of local escrow companies, title companies who do business in your county and whichever lenders who have products you are interested in looking into. They and/or their site will TELL you how much their ALTA and CLTA rates are per $10K or $100K of your loan or purchase price, what is customarily paid in CA by the buyer and the seller or split between the two, typical escrow fees for your loan amount or purchase price, loan or buy-down fees, doc drawing fees, typical appraisal fees (whether in-house or contracted), even tax service fees and typical notary fees for your transaction! Upon shopping for mortgages, you should easily be able to see which lenders have a lot of "garbage charges" and who doesn't and the reasons why in each case.

In CA, all your ancillary fees are the SAME to you as the seller or buyer/borrower whether or not you even take out a purchase money mortgage or WHO contracts for them (seller's choice, buyer's choice, escrow company's choice (which may be a subsidiary of a title company), or the lender who is paying for all of it (providing it to their borrower-client "free").

If your lender provides all your ancillary services for "free," they are certainly going to exercise their right to contract with services of their choice and yes, they may have a financial stake in some of the service providers they opt to use. But ALL of these tasks still must get done, whoever does them, and, in this case, the borrower isn't paying for it. For example, there isn't that much difference in title insurance fees from one title company to another. One or two in each county have their own plants but every one of them has to get their info from the same horse's mouth .... that is, your county recorder and assessor's office.

The inner workings of YSP between lenders and boots-on-the-ground mortgage brokers, originators and bankers are not well understood or generally known to the public and it doesn't matter (except when they were an exorbitant 5-12% during the exotic mortgage, fog-a-mirror, get-a loan era). During those years, NINA mortgages were commonly (fraudulently) made to people with a known (to the mortgage broker) falsified mortgage application and supporting docs (often prepared for the lender's underwriter by the broker's own processor). This was all engineered to line the pockets of shady, greedy mortgage brokers when their clients agreed to the terms of exploding mortgages due to having bad credit or no credit and often needing "rescuing" from imminent foreclosure. Many of these mortgage brokers have since had their licenses suspended or revoked ... for good reason.

YSP is the same principle as buying a new vehicle from a dealer who is selling it to you for well under True Car and Edmund's price points for your area because the vehicle mfr will compensate them after the sale thru the back end (thru a bonus or "kickback"). As a new vehicle buyer, you don't CARE about this nor do you have any control over it! You only care about the terms of your OWN deal. These "bonuses" aren't well known or understood by the new vehicle-buying public but it doesn't matter, because, just as with mortgage brokers, mortgage bankers and lenders, that's the way the "system" is set up.

There is no free lunch. Someone is paying for your necessary services which you legally must have third parties perform in order to complete your RE transaction. It's actually a "good thing" that YSP's exist, because if they didn't, every single borrower would be paying for (or financing, on top of their P&I) their own closing costs. That's the way it used to be back in the dark ages ('80's and prior) before the use of YSP's began to be widespread. If you didn't have the cash to close, you weren't able to buy (or refi). Prospective buyers were not yet ready to buy until they saved enough for their downpayment AND closing costs.

tl;dr

Submitted by bearishgurl on April 26, 2016 - 5:57pm.

flu wrote:
harvey wrote:
Lol, the kitchen sink analysis.

I like to consider my options, plus I want to see if I can beat BG to see who can come up with the longest post on this thread. It's my new goal on Piggington. Did I succeed? Its kind of hard for me to type though on a tiny smartphone where I am.

This!

I have access to a real desktop computer, real keyboard and large monitor ... usually all during the business day and also type 80+ words per minute ... even in my "leisure." So, it's going to be pretty hard for you to compete with that, flu. I know I couldn't cuz my eyesight isn't good enough to do anything but twitter on a phone. (Except I don't belong to twitter, lol ....)

Um, yes. I am a self-professed "road-trip queen" and have been accused in the past of packing the "kitchen sink" in my car's trunk. I like to have everything I think I might need when on the road :=0

Submitted by moneymaker on April 26, 2016 - 8:10pm.

Anyone care to post a current YSP chart, haven't seen one in a long time.

Submitted by HLS on April 27, 2016 - 1:34pm.

moneymaker wrote:
Anyone care to post a current YSP chart, haven't seen one in a long time.

There is no 'standard' chart.. it's not a secret and
there are some online lenders that show credits at different rates, it's always a % of the loan amount.
It can give you an idea. There are pricing hits for lower credit scores, equity, rental property etc, so there is not just one rate that fits everybody.

3rd party costs don't change a lot with a lower loan amount which is why a $400K loan has enough credit to cover all costs but a $200K loan at the same rate may not have enough credit to cover all costs.

Each lender prices differently, but it can be a spread of anywhere from .25% to .875% (of the loan amount) for each movement of .125% in rate.

One lender may have .75 spread between 3.50% & 3.625%
and only .375 between 3.625% & 3.75%
another lender could be very different

Submitted by gzz on April 28, 2016 - 1:32am.

HLS wrote:

Nobody should ever have a drop of 20% in their payment.
unless your rate dropped 1%-2% which would mean that you should have refinanced multiple times all the way down.

Your $6000 a year savings doesn't sound right.

I refinanced just once from a $380,000 4% loan to a $340,000 3.375% loan. The first loan had PMI, the second did not.

HLS wrote:
What if rates go up ?

What if, what if, what if?

The fact is he has a place he wants to buy, and only has 5% for a down payment. He's not going to get a good mortgage with 5% down and likely imperfect but not bad credit scores.

He should pay down the imperfect mortgage he can get and save as fast as possible until he hits 20% and then he can get a good one. Right now people are getting 3.25% mortgages with no PMI. Rates could go up a 0.75% and he'd still be best off paying down the mortgage as fast as possible and removing PMI.

Submitted by HLS on April 28, 2016 - 11:12pm.

GZZ
90% of what you said makes no sense. Clueless and scary.

Apparently another 'expert' who thinks they know what they're talking about.
Can ya send me the names of 'people' who are getting
3.25% mortgages right now ?
That rate comes with a HUGE cost. I don't know anyone
who thinks it makes sense.

If rates go up .75% it makes no sense to refi,
no borrower would be better off.

There's no such thing as an 'imperfect mortgage'
You do get a 'good mortgage' with 5% down, the only difference is PMI. the rate is the same. Apparently you don't know this either.
The only thing you say that makes sense is about removing PMI.

AN & FLU get it. Refinancing all the way down multiple times at no cost saved them thousands.

Refinancing one time and thinking you hit the jackpot
probably means you left a lot of money on the table.
Congratulations.

Submitted by harvey on April 29, 2016 - 8:24am.

lol, HLS is still trolling for suckers.

Submitted by gzz on April 29, 2016 - 12:13pm.

Clueless, no, you are looking for clients.

Submitted by gzz on April 29, 2016 - 12:16pm.

"Refinancing one time and thinking you hit the jackpot
probably means you left a lot of money on the table."

My mortgage is a 3.375% 30-year with no PMI and 0 points.

Can you show me how I left money on the table?

Submitted by an on April 29, 2016 - 2:57pm.

gzz wrote:
"Refinancing one time and thinking you hit the jackpot
probably means you left a lot of money on the table."

My mortgage is a 3.375% 30-year with no PMI and 0 points.

Can you show me how I left money on the table?

My rate is 3.5% 30 years with all my closing cost paid for and about $2500 to pay for my property tax and insurance. If rate drops again where I can get 3.375% with about $4000 in credit like I am getting in this deal, I will refi again. A few years ago, I did exactly that 4 times over two years. So beyond getting lower rates, I got about $4k in credit each time I refi. So, I didn't pay taxes or insurance for over 2 years. This time, I had option for 3.375% with $2000 in credit (should be enough to pay for 3rd party fees but not enough to pay for my property tax and insurance), so I decide to go with the 3.5% and get another $2k in credit. If I went with 3.375% and rates go down 1/8% of a %, if I refi again, I would lose out on the $2k - interest saving I would have saved going with 3.375% instead of 3.5%, which isn't that big if it happened w/in a few months. That to me, is leaving $ on the table.

Submitted by harvey on April 29, 2016 - 3:22pm.

Why stop at mortgages?

Car dealers offer cash back also.

Submitted by gzz on April 29, 2016 - 9:46pm.

Well you are actually gambling that rates will stay low or keep going down.

If you lose, you pay more for the life of the loan. If rates go back to the 4% range and you intend on keeping the house for a long time, the extra .125 will be about $125 a year in interest payments per $100,000, gradually decreasing as the balance gets paid down. But on a typical San Diego house, about $12,000 over the life of the loan.

So it is not free money, rather you won a number of bets with banks. That's great.

The process of doing the refi also results in a credit inquiry and a lot of time and hassle, though that depends on how complicated your finances are and whether you are self employed or not. I am, and it makes the mortgage process more complicated.

I'd need at least $1000 gain before I'd deal with all that, maybe $2000. Personally, if I want to bet rates will go down, there are easier ways of doing so with bond funds and ETFs.

In summary, the cash you picked up from banks doing serial refinances are no more free money than the money I made this year with some good stock investments. In both cases we made money with correct predictions about markets. It wasn't free because we took on risk to do so.

Submitted by bewildering on April 29, 2016 - 9:48pm.

gzz wrote:
Well you are actually gambling that rates will stay low or keep going down.

If you lose, you pay more for the life of the loan. If rates go back to the 4% range and you intend on keeping the house for a long time, the extra .125 will be about $125 a year in interest payments, gradually decreasing as the balance gets paid down. But on a typical San Diego house, about $12,000 over the life of the loan.

So it is not free money, rather you won a number of bets with banks. That's great.

The process of doing the refi also results in a credit inquiry and a lot of time and hassle, though that depends on how complicated your finances are and whether you are self employed or not. I am, and it makes the mortgage process more complicated.

I'd need at least $1000 gain before I'd deal with all that, maybe $2000. Personally, if I want to bet rates will go down, there are easier ways of doing so with bond funds and ETFs.

In summary, the cash you picked up from banks doing serial refinances are no more free money than the money I made this year with some good stock investments. In both cases we made money with correct predictions about markets. It wasn't free because we took on risk to do so.

$12000 over 30 years. The extra $125 will reduce in 'real' value over the years. Plus, the average length of stay in a house is 6 years.

Submitted by gzz on April 30, 2016 - 1:29am.

"$12000 over 30 years. The extra $125 will reduce in 'real' value over the years. Plus, the average length of stay in a house is 6 years."

I agree, that's the worst case scenario. The extra interest may be tax deductible depending on AMT status as well. But it does happen. The banks offering to pay you for taking a higher rate are not stupid and think it is risk worth taking.

Submitted by Coronita on April 30, 2016 - 2:27am.

Oh just stop people, will you? Grind through the number yourself. It might make sense to refi, it might not. It depends on your personal situation.

Here is a screenshot of the rough spreadsheet I was using for my own situation....

Should I Refinance?

Let me explain how this works. (again again, this was something I put together in 15 minutes at the time. And since I'm not a finance major, this might not be correct).

1. Loan #1 represents your first loan
2. Loan #2 represents your refinanced loan

3. The loan term is in months (360 for 30 year), and the monthly interest rate is used (4% yearly divided by 12)

4. I believe the monthly payment is determined by the same formula used to determine present value of an annuity.. So the payment = p * r / (1- (1+r)^(-t)
where p is you total loan, r is your monthly interest rate and t is the loan term in months.

5. I created two amortization tables (which you can't see).
The first table amortizes the first loan using a loan balance of $500k
The second table amortizes the second loan, using a loan balance based on the month of the first loan you decided to refinance

6. In my example (cell c11), I hypothetically decided to refinance 22 months into my 4% first loan....

a. On month #22, I would still have a principle of 483583.74 (row 12)
b. Up to that point, I would have paid 36,099 in interest charges alone (row 19) on the first loan,
c. I would have had a remaining 359347 in interest charges for the remainder of the loan

7. If my new loan was .25% lower (3.75%)
a. My total interest paid on the new loan would be $322654.8741, about $600 lower than if I finished my original 30 year loan
b. My monthly payment would be lower by $150/month (row17 and row 7)
c. If the bank was also offering $3000-4000 rebate on top of a no out of pocket closing costs (which many times they were), that's even more icing on the cake...Free money.

Lower monthly payment, less total interest to pay, plus cash up front.
Win, win ,win.

And hence, why I was a serial refinancer of 2 years or sometimes less or if rates dropped by more than 0.25%. If you actually played around with the spreadsheet, you would notice that in the absence of any additional rebates, 22 months is roughly the cutoff for my loan balance at the time, where you would lower your monthly payments AND also not pay more total interest over the life of both loans. That 22 months extended to more months once the lenders started to get crazy and added free upfront rebate cash on top of that, effectively paying me to refinance to a lower rate and lowering my total interest.

That is not to say that refinancing even if your total paid interest goes slightly up in return for a much lower monthly payment is bad either. It depends on what you plan on doing with the extra savings in your monthly payment. I mean, with that savings in monthly payment, you could use it to pay down the principal portion of your new 30 year loan too, which would effectively lower your total interest paid on your new loan.

I just chose to keep things simple, refinance when both lower payments and total paid interest is break even or lower than before. (Well, at least until my financial situation changed for the better, and I didn't feel comfortable leaving most of net worth in the stock market, so I refi'd to a 15 year and then eventually paid it off.)

So again, whether one should refinance or not, the answer is "it depends".

Sorry for the long post. But unlike BG's post, at least mine has a workable spreadsheet and data.

Submitted by Coronita on April 30, 2016 - 2:51am.

Here's the spreadsheet if you want to play around with it.

Again, disclaimer... No warranties. Use at your own risk.

https://drive.google.com/file/d/0B3UJwoJ...

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