[quote=harvey][quote=FlyerInHi]I just read this thread quickly.
Harvey is right, you have to evaluate the NPV of different alternatives based on the info you have today. That means is you want to keep the house/loan for a number of years it makes sense to buy down the rate. The loan with cost might be a better alternative.
One thing I remember about finance is that we assume that capital is unlimited or readily available, so we should choose the investment with the highest NPV. Problem is most people don’t have the cash to select the best alternative.[/quote]
And the point I’m trying to make is that mortgage brokers do not have an incentive to present all the alternatives in an objective way.
The cash cows of the consumer finance industry are the financially unsophisticated. Most Americans are perpetually struggling with cash flow, and the market for “no cost” and “cash back” products of all sorts is huge.
I’m not going to try to teach a course in finance on an internet forum. All anyone needs to know to do the calculations is that future cash flows need to be discounted. The rest is an exercise for the reader.
The more interesting question is why banks would even offer “no cost” and “cash back” loan products? They certainly aren’t doing it for charity. I am entertained by the lack of cynicism here.
The answer of course is that the banks expect to gain it back over the long term. My advice to anyone doing a refi that expects to keep a property for any number of years is to avoid “no cost” and “cash back” loans (and anyone that even offers them.) They are simply too good to be true.[/quote]
LoL, I did just what you suggested and I lost big. So you lost your credibility right there. If you think it’s too good to be true, you really don’t know what you are saying.
