refinancing again with negative points..

[teaboy]

I’ll probably never be rich because I get nervous whenever I think I’ve found a free lunch…

Anyway, I’m thinking of refinancing my current mortgage (30-year fixed @ 4.25% with 29 years left) to a new 30-year fixed @ 4.25%.

Why? Because by doing so (according to absolutemortgageco.com) the new mortgage would come with -2.873 points (-$12k), meaning that I would receive a credit of $7k from the refinance, after all closing cost.

Assuming there’s no clause preventing it, I’d then do this every 6 months (while rates are low enough, which could be for a few years yet).

Am I a genius, or what?

tb

[all]

Keep in mind that your new mortgage will have new 30y term – you will pay additional $25K in 2042 if you go full term. Also, the credit usually cannot exceed the closing cost and it can’t be applied to the principal balance. It will cover the lender’s and 3rd party fees (which you would not have to pay for without refinance, so that is no real benefit for you). You can use it to cover the interest due at closing and to fund the escrow account if you decide to pay your property taxes and insurance through an impound account.

Or you could refinance into 4% at no cost and save $100/month.

[UCGal]

Darn. There is no free or negative cost mortgage for me. My unAmerican plan of paying off my mortgage aggressively puts my balance too low to get the benefits…

Seems like a good time to refi for a lot of folks, though.

[AK]

It helps to be wary of a free lunch, generally speaking 🙂

From what I’ve seen those generous negative points deals appear suddenly after a major change in interest rates, then disappear just as suddenly. So even if the par rate stays low, you may not be able to get a negative points deal like this again.

I’d check with a reputable mortgage broker as well as direct lenders. Some people here have recommended Sheldon.

[arv]

Following similar strategy and I am able to refinance two times with negative points receiving around 3K and reducing rate at the same time. The only way to receive funds was opening an impound account with lender.

Not sure if there is a clause which can limit refinance frequently to leverage current mortgage environment this way.

[treehugger]

I just got off the phone with the guy from absolute mortgage and he said it wasn’t worth it for me to refi! I currently have 4.375 from a refi I completed last November! Who are you talking too I think I like their rhetoric better….I used Sheldon both to buy and refi last year. I shopped it out last year at my refi and Sheldon beat any of the internet scams I was getting excited about. I suppose I should see if Sheldon thinks I should refi again? I feel bad calling Sheldon ’cause I am high maintenance and he is soooo tolerant. I think that is why I like to work my way through the internet shisters first.

[arv]

I did talk to absolute mortgage guy he didn’t say that refinance is not worth in my case (may be because I didn’t ask) I am also on 4.375%. I think it all depends upon how much is your current balance so that rebate can cover the closing cost can leave some thing for you to keep. I did last refinance through Amerisave. They are fine but one needs to be familiar with refinancing and keep communicating with them. I think Sheldon is being recommended here earlier. How to reach him? I am thinking of getting quote from him in future.

[UCGal]

[quote=arv]I did talk to absolute mortgage guy he didn’t say that refinance is not worth in my case (may be because I didn’t ask) I am also on 4.375%. I think it all depends upon how much is your current balance so that rebate can cover the closing cost can leave some thing for you to keep. I did last refinance through Amerisave. They are fine but one needs to be familiar with refinancing and keep communicating with them. I think Sheldon is being recommended here earlier. How to reach him? I am thinking of getting quote from him in future.[/quote]
http://www.homeloansheldon.com/

[teaboy]

[quote=arv]Following similar strategy and I am able to refinance two times with negative points receiving around 3K and reducing rate at the same time. The only way to receive funds was opening an impound account with lender.

Not sure if there is a clause which can limit refinance frequently to leverage current mortgage environment this way.[/quote]

OK guys n gals, so I’m back again trying to get my head around this free lunch I’ve found. Arv, I think you and I are onto a winner here.

In October I refinanced and *effectively* made $3k profit from it. I also refinanced from a 30-year to 15-year fix at a lower rate but the loan duration and interest rate on the loan were not of concern to me, as I am intending to refinance again as soon as I can (every ~3 months ad infinitum).
Here are the rough numbers on the refinance:
$403k (mortgage payoff to original mortgage)
$403k- (new mortgage loan)
$5k- (net lender credit)
$2k (fixed closing costs: appraisal, title, fees, etc)
$4k (prepaid and escrow items: interest for partial first month, property tax escrow) – note: I don’t consider these true “costs”.
$1k- (cash required from me at closing)

So, I refinance, pay $1k upfront, then a few days after my original mortgage is paid off, I receive a check from my original mortgage servicer for ~$3.5k for the escrow I had with them, plus ~$0.5k left over from the mortgage payoff (which they presumably overestimated to ensure they get enough payoff money to cover additional interest if payoff is delayed).
Therefore, my net profits from the refinance are: $3.5k + $0.5k – $1k = $3k.

I just did it again in January, refinancing back from a 15-year to a 30-year and got $4k back this time. Again, the loan duration and interest rate on the loan were not of (material) concern to me, as I am intending to refinance again as soon as I can (every ~3 months ad infinitum).

If I can do this 3 more times this year, I’ll have netted ~$16k. tax free.

Known risks/issues include:
1. I’m continually effectively adding on 3-4 months onto the life of my mortgage every time I refinance – I realize this but my net wealth increases with each refinance. That’s all I care about. I have savings and investments elsewhere.
2. Rates might start increasing materially – in which case I might just have to decide to stop my merry refinancing dance.

Does anyone else have thoughts on this? Who is losing out here? Is it the purchaser of the mortgage asset (Freddie/Fannie), who was expecting a nice 30-year income stream only to have me pay it off after 3 months?
Have I really found a free lunch or am I missing something and actually on a riding for a hiding?

tb

[EconProf]

I believe you are taking advantage of the generally falling interest rate environment of late. It makes sense for the lender and the borrower only because prevailing rates have fallen of late. Today’s 10-year bond rate really popped up due to good unemployment numbers, so the game may already be over.

[teaboy]

EconProf, what do I care about (non-material changes to) interest rates?
If I refinance 4 times in 1 year and in that time rates go up from 3.5% to 5.5%, I would net $16k from the refinancing (tax free) and would be paying and extra $8k (2% * $400k, tax deductible) per year in interest.

Highly simplified, I know. But, am I missing something?

tb

[EconProf]

You’ve been able to do it only in a falling interest rate environment, and yes, it looks like a smart move so far. I am only suggesting that with rates now leveling off or going up, it will no longer be feasible.

[SD Realtor]

What you are missing is that you need to count all of the interest you paid prior to each and every refinance. You don’t seem to be counting that cost.

However if you simply count that interest as paying rent then yes, you are not doing badly.

The selloff in the bond market was pretty substantial today.

In order to gain any measure of whether your plan is successful or not we have to know how long you would own the home

[teaboy]

[quote=SD Realtor]…if you simply count that interest as paying rent then yes, you are not doing badly.[/quote]
SDR, of course I count that as equivalent to rent. I need to live somewhere.. 🙂

[quote=SD Realtor]In order to gain any measure of whether your plan is successful or not we have to know how long you would own the home[/quote]
Maybe. But it’s so difficult to know what might happen. If I had to guess:
~5% chance we’ll be here 30+ years
~15% chance we’ll be here 11-29 years
~40% chance we’ll be here 5-10 years
~40% chance we’ll be here <5 years

so, let's call it ~9 years.

[quote=EconProf]You've been able to do it only in a falling interest rate environment...with rates now leveling off or going up, it will no longer be feasible.[/quote]

EconProf, I'm not sure I follow. Are you saying that I wont be able to refinance and get a ~$6k net lender credit when rates are level or going up? I dont understand why this would be.

[arv]

teaboy, it is good to see some one else is using this approach to get some money out of home. I have done this successfully a number of times with net 25k getting in rebates since last year.

My latest is around 6800 cash back on the closing which happened today.

This approach works in falling interest rate environment with out much risk. In rising interest rate environment one has to take a risk of getting locked into higher interest rate.

I also consider interest payments as rent payments (as teaboy mentioned) and thinking that I am buying a home a year later with reduced price.

My latest is 20 year refinancing. Last year when I bought home it was 30 year 4.875. Now I am at 20 year with payment increased only by $250 per month compared to first financing and top of that I made 25K tax free with refinancing. Even if I may not able to refinance to lower rate in future I am fine with this payment.

Like any other investment this may not work for every one. So one has to make choice to use it or not. In my case it happened that I able to use and make it for me so far.

[Author]

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