3.75 vs 4.00

[an]

[quote=gzz]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.[/quote]
You’re making just as much of a gamble to pay point and buy down rate or pay closing cost to do the refi or staying put and do nothing because you don’t want to pay closing cost, hoping rate will go lower. Every decision you make about refinancing is a gamble. I’ve made all of those decision and lost big when I thought I could time the bottom of interest rate and bought points because I will be owning this house indefinitely.

[Coronita]

[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]

Ok, show us then.

Now both Harvey and you are claiming to know how to evaluate this with NPV. I have yet to see anyone do this with numbers. Without that, to me that just seems like people just want to (again) argue for the sake of arguing.

So why doing either you or Harvey show us what you are talking about. Afterall, both of you seem to have a lot of time to be talking about politics on an RE forum..Asking you to show how how NPV works out in this case should be a walk in the park, for finance majors, right?

IT seems like now that BOTH you and Harvey brought up NPV to this discussion, you brought it up in a backassward way. Because, correct me if I’m wrong, but if someone is saving $150/month in the near term, isn’t that $150/month freed up today available for someone to use EITHER to pay more principal on a mortgage OR to invest it elsewhere?

So in the case of paying the mortgage off early, it’s like putting that $150/month to work in a 3.75% ROI… Or if the person doesn’t pay that extra $150/month and invests it elsewhere, whatever that ROI is? In either case, how is either or both scenarios worse off than not refinancing and having to pay the bank an extra $150/month, when at the end of either loans (either continuing to pay loan 1 or refinancing to loan 2), neither is really paying more total interest (which Harvey now also says, evaluating total interest is meaningless), and if the bank is also adding a cash rebate up front of $5-10k?

Of, if one does want to bring up NPV, isn’t it also incorrect than to compare loan1 and refinanced2loan by total interest paid having to be equal, “otherwise you lose”? Afterall, if you refinance and extend your loan out an additional 5 years, interest paid for those 5 years, even if more also needs to be discounted to present value and compared to the ROI of your cash back up front and the $150/month cash savings you get immediately?

This doesn’t appear to be rocket science, but now you folks are bringing up NPV and seems like over-complicating things.

[no_such_reality]

With the right WACC and discount rate you can talk yourself into or out of any investment. Even buying a UTC condo for the octogenarian client’s life estate.

To do either there needs to be answers to the questions i posed. I asked them because last refinance I did it was still Wild West.

Short of some wacky discount rate or exorbitant not mentioned cost, the NPV on your refi scenarios greatly favors the refi. Per my numbers above on mine the PV of FV of $33k ish is around $17.5k.

If the riefinance is “no cost” then a 0.125% no cost refinance with partial point credit back is worth doing regardless of loan amount. If that scenario doesn’t make sense, then there are other costs not being covered by “no cost” or a float issue with your other expenses to close.

I have no problem with brokers making money, it’s like real estate agents. it’s the cost of doing business. I like to know up front how my partners in a deal are making money and roughly how much.

Years ago, you could deal with a bank and they’d tell you the rate was 4%, you’d then call a broker, theyd tell you 3.75% and he’d make a nice commission on it. And it would be with the same bank. The broker provided a service so its fair they get paid, the financial sector though was treating me like a cow to be milked. Has that changed?
.

[Anonymous]

[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.

[NotCranky]

What’s getting trolled here is “mystique” ,” you are a bunch of idiots” he says with the hidden agenda of getting people, namely potential clients, to let him think for them. HLS has the secrets. He knows a good number of people choose aggressive people that are willing to twist people’s words to come out looking like he holds a secret that will serve a client better than other mortgage brokers can , it’s all about “choose me”….hook , line , sinker.

That’s not to say he isn’t a good mortgage broker, he probably is, people say he is, so I believe them . It’s just right now the bait of choice is the “no cost loan”. Actually it’s his knowledge of the no cost loan and everybody else’s stupidity that he is using. That’s why I don’t like his contributions, he selectively absorbs to the topic spits back other peoples comments twisted to serve this ploy , massively puffs himself, plays the martyr while being verbally abusive ( “I do a ton of free counseling and just get beat up for it” “idiot this, idiot that”).

[an]

[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.

Also, nice try dodging the request to show data.

[FlyerInHi]

[quote=AN]
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.

Also, nice try dodging the request to show data.[/quote]

You lost because rates went down. So your buy down fees were “thrown away”.
But decision making is based on what you know in the present and expect the future to be. That’s how you evaluate alternatives.
Your decision at the time was sound, but your assumptions were wrong.

1/2 the population believes that we will have a debt crisis because of deficit, entitlements, etc…. If you believe that will happen, you should buy down the rates. If not, you don’t have the force of your convictions.

[an]

[quote=FlyerInHi][quote=AN]
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.

Also, nice try dodging the request to show data.[/quote]

You lost because rates went down. So your buy down fees were “thrown away”.
But decision making is based on what you know in the present and expect the future to be. That’s how you evaluate alternatives.
Your decision at the time was sound, but your assumptions were wrong.

1/2 the population believes that we will have a debt crisis because of deficit, entitlements, etc…. If you believe that will happen, you should buy down the rates. If not, you don’t have the force of your convictions.[/quote]that’s exactly my point. Regardless of what you choose, you’re making a gamble. Even if I didn’t buy down rate but just pay closing cost, I would still have lost.

[FlyerInHi]

The hardest part is making sure your assumptions are correct.

I have an adjustable mortgage from 1989. It was a brand new house back then and there were incentives from the builder. Never refinanced

[Coronita]

I still don’t see any updates and data from people with a finance background….

[NotCranky]

O.K. Data, So what is the best owner occupied “no cost” refi rate today on 130k ,20% LTV, >740 credit, zero back end debt?

[Coronita]

Rustico, I don’t know ask a mortgage broker..

I’m stlll waiting, however, for a response from Harvey or BrianSD to correct the spreadsheet I put together. Afterall, both said it’s clearly wrong, and one of them said he is a finance major. So this should be a walk in the park for a finance major.

[FlyerInHi]

flu, I didn’t look at your spreadsheet so I don’t know what they’re all about… but quickly here. You don’t want to evaluate an old loan vs. a new loan (that’s how loan sales people say “i can save you money”). You should look at all the alternatives available today based on some assumptions that your bring to the table.

It’s like buying a new car. Look at the new cars available. It makes no sense to evaluate your one old car, against just one new car.

[Anonymous]

[quote=flu]Rustico, I don’t know ask a mortgage broker..

I’m stlll waiting, however, for a response from Harvey or BrianSD to correct the spreadsheet I put together. Afterall, both said it’s clearly wrong, and one of them said he is a finance major. So this should be a walk in the park for a finance major.[/quote]

Sorry dude, I’m not going to do your homework for you. I looked at your spreadsheet and saw the telltale noob mistake of not discounting future cash flows and that was that. A precise schedule would take a couple of hours to get right. You chose to turn our conversation into a project, not me. If you and your buddy AN don’t believe I have “credibility” then I can live with that.

Just use the spreadsheet you have. It may be close enough for what you are trying to do, whatever that is. It seems you just want validation for your past decisions.

So here’s some validation: You outsmarted the bankers. They were chumps when they gave you that up front cash on a refi. They didn’t have an ulterior motive and didn’t even do the math. They were happy to reduce their bottom lines and make your insurance payments for you.

Yup, they just wanted to give you money. And you were smart enough to take it.

[Coronita]

[quote=harvey][quote=flu]Rustico, I don’t know ask a mortgage broker..

I’m stlll waiting, however, for a response from Harvey or BrianSD to correct the spreadsheet I put together. Afterall, both said it’s clearly wrong, and one of them said he is a finance major. So this should be a walk in the park for a finance major.[/quote]

Sorry dude, I’m not going to do your homework for you. A precise schedule would take a couple of hours to get right. If you and your buddy AN don’t believe I have “credibility” then I can live with that.

Just use the spreadsheet you have. It may be close enough for what you are trying to do, whatever that is. It seems you just want validation for your past decisions.

So here’s some validation: You outsmarted the bankers. They were chumps when they gave you that up front cash on a refi. They didn’t have an ulterior motive and didn’t even do the math. They were happy to reduce their bottom lines and make your insurance payments for you.

Yup, they just wanted to give you money. And you were smart enough to take it.[/quote]

You see Harvey that’s where you are wrong.

I don’t need validation for what I did in the past, because unlike most people, if I did something that less then optimal in the past and someone brings it up with actual data or proof, I want to know about it. Just like in the past when I was on the bandwagon of “now is not a time to buy more rental properties, where some folks sent me data that showed me otherwise”.

I just don’t like folks who argue for the sake of arguing, and then when asked, ok “well show your work”, nothing, zip, nada. In the past, for example, folks comment on real estate and places where they know nothing about (hence the term LETDLITA).

Here’s the thing I don’t get. If your arguments are really valid and easily shown, you would do it. You say you don’t want to “waste” your time to post real data

…BUT, you already wasted A LOT of your time to initially comment on this thread, and then check up many times on this thread, and to reply many times to this thread. So it seems like, at least to you, this thread is pretty important to you. So, if it’s so important to you to make your point, and if what you are saying is can be backed by a real example with real data from someone with finance background such that this would be so easy to, why wouldn’t you want to show people what you are talking about? Because after all, you already spent a considerable amount of time already expressing your opinion on this subject, and spent considerable number of days reading some of these threads, and responding to these threads. It’s not like anyone is really questioning your credentials. But, it’s just like many other times we see here from others. For example, someone else professing to be real estate expert in area X, despite not living in area X, not having been to area X, and then when asked for “more data’, getting into some off tangent comment about “construction quality of homes, the number of walls, and lizard-infested locations” that has nothing to do with the original discussion, as was exemplified by other posters.

So, if you are in the capacity to show us what you mean, why don’t you? I mean, certainly it’s more interesting, more relevant, and more useful to this blog than the 9+page about Donald Trump, or the 9+page of the 2016 Presidential Election, or the 9+page of reasons why someone can/cannot vote for Trump or Celebrity Endorsements. Afterall, this is an RE and to a lesser extent a finance blog. So why, if you are in the capacity to show us what you are talking about, why wouldn’t you?

I don’t think it would take hours. It certainly wouldn’t take any more hours than you have alreay spent on this blog commenting on this very thread, and reading every comment someone has typed on this thread.

Why now, when someone asks us if you can enlighten us what you are talking about, all the sudden is time so important to you?

Again, if you show me what you’re talking about, I’ll be happy to the first to admit decision I made in the past was sub-optimal or flat out wrong if that’s the case. I don’t care. I don’t have to be “proud” of my past decisions. Frankly, the only thing I care about, is having the right information so in the future I can make more money. So, if that means being wrong and called an idiot, fine. I can live with that.

[Author]

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