[quote=Blogstar]Break even point does matter if you are going to stay in the home for a long time. The lower interest rate of a loan with “costs” could be a thing of value over the “no cost” loan.
Paying extra principal on the original loan ,the “no cost” refi, or a standard fees lower interest rate refinance is going to save money in all three cases. Nothing special about the “no cost” loan there.
We shouldn’t act like no cost means free.[/quote]
******No cost DOES mean free.
The comment made was that there is no such thing as a no cost loan.
THERE ARE LOANS AVAILABLE WITH NO COST.
I’ve done hundreds of them for borrowers and explained them clearly. Didn’t cost them one penny.
No addition to principal balance, no hidden fees or costs.
There is no break even point or recovery period with a no cost loan. You benefit from day 1 with a lower rate.
If you want an even lower rate loan with costs you can get one too.
A loan with costs could save more in the long run,but many people consider neither a refi with costs or without because they are confused.
30yr loans that have a cost usually have a TRUE break even period of at least 4-5 years but very few people know how to figure the true savings properly.
(You don’t just divide the loan cost by the monthly savings)
Payments are a combination of principal & interest
and there is the time value of money.
Anybody who paid any costs for a loan over the last 8 years or so probably wasted their money.
Intelligent, savvy borrowers refinanced multiple times all the way down the past few years and some pocketed thousands of dollars in the process and they are still on track to pay their loan off at the same time as their original loan was scheduled to be paid off.
There are many people who are confused, stubborn or foolish who will end up paying tens of thousands of dollars in extra interest because they just don’t get it.
BTW,
you are wrong that a lower rate refi is going to save money in all 3 cases. That’s not always true.
