refinancing again with negative points..

[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 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 work for me so far.

[EconProf]

Teaboy, looks like you (and others) have made good money by refinancing and “capturing” the gain resulting from the falling interest rate environment.
If I understand correctly what you have done, (and I am only relying in this thread as I have not read any other analyses of this strategy), you are resetting your long-term contract to repay a loan with each drop in prevailing interest rates.
A loan is a promise to pay a flow of funds for a certain period of time, at a fixed (in this case) interest rate. Once the loan has closed, at the then-prevailing market rate, the lender and borrower are both committed. What if, one month later, prevailing interest rates jump? You are locked in at a comparably good interest rate so you are indifferent. But the lender will kick himself because he could have waited a month and gotten much higher monthly payments for as long as 29 years, 11 months. The borrower will contratulate himself for his foresight and accumen.
Of course, if rates drop, the feelings are reversed.
If they drop enough, however, the borrower can refi at a lower rate and pay off the previous lender. That lender will not get to keep the nice premium (over new prevailing rates) that he had hoped to keep. The borrower can capture the gain via “negative points”, which the new lender will pay to get the loan done. My guess is you could forego the negative points and instead get an even lower rate. The transaction costs for all sides are apparently exceeded by the gain from the lower rate for 30 more years. So a new loan is worthwhile for both the borrower and the new lender. The previous lender kind of gets shafted, but that’s the result of not correctly predicting future interest rates.
None of this would be possible in a stable or increasing interest rate environment, which I have been predicting, wrongly so far, for a long time.

This looks to be an interesting strategy, and I’m surprised we haven’t seen much about it in the national media.

[bearishgurl]

[quote=EconProf]…This looks to be an interesting strategy, and I’m surprised we haven’t seen much about it in the national media.[/quote]

EconProf, I think the reason these techniques are not highly publicized is that they are rare. How many property owners right now CAN be “serial refinancers.” First, their CREDIT has to be good enough to do so, they can’t have too much open consumer debt or student loans and they need an appropriate steady flowing income (W-2 preferred). Secondly, their mortgages cannot have prepayment penalties or other provisions to keep them in it for a period of time (6th mos?).

I just don’t see a current tsunami of “mainstream owners” being able to do this every few months, even if they wanted to.

[teaboy]

[quote=arv]My latest is around 6800 cash back on the closing which happened today.
[/quote]

Arv,
6800 “cash back” sounds high. Is this net of all lender fees (“origination” fees, etc), and other fixed closing costs (appraisal, title, other fees, etc)? If so, how did you achieve this?
My understanding is you cannot receive actual cash back from the closing (as that would make it a “cash out” refinance), so the net credit you receive has to be less than the other items the borrower must fund at closing (i.e. the initial deposit for you escrow account, and the daily interest charge for the period between closing date and the first month’s new mortgage payment)
As such, it’s my understanding that, for me, the greatest net credit I can get from each refinance is ~$4k.

[quote=EconProf]Teaboy, looks like you (and others) have made good money by refinancing and “capturing” the gain resulting from the falling interest rate environment.[/quote]
EconProf,
In a falling interest rate environment, as in my previous 3 refinances, I have received both a net credit plus a lower interest rate. This is a win-win.
In a rising interest rate environment, one would receive a net credit plus a higher interest rate. This is a win-lose.
However, what I am proposing is that even in a (not too steep) rising interest rate environment, the former “win” (net credit) would outweigh the latter “lose” (higher interest rate).
No-one can predict rates. From a practical point of view, also, I realize that it is most likely that I will not remain in my current house for 15-years, and so cannot reasonably expect to be able to take full advantage of a 15 or 30-year mortgage.

No-one can predict rates, but if we assume that they follow a sine wave over time, assume inflation at ~3%, etc, would be the equation to model the expected profit/loss from my hypothesis?
Is there a math wiz in the house?

tb

[arv]

teaboy,
property taxes + hazard insurance renewal + impound account helped to consume the rebate. So it all depends time of refinancing and loan amount and property taxes.

[moneymaker]

Your MIP could be changing from a 5 year to a life of the loan. I think serial refi’ing is probably about as profitable as serial gambling, the house will always win, unless you walk away. Is that you’re strategy?

[teaboy]

[quote=moneymaker]Your MIP could be changing from a 5 year to a life of the loan.[/quote]
Regarding MIP, my mortgage is <80% LTV, so this is not relevant.

[quote=moneymaker]I think serial refi'ing is probably about as profitable as serial gambling, the house will always win, unless you walk away. Is that you're strategy?[/quote]
Yes, of course I can walk away. I would continue refinancing and pulling out ~$16k/year while it made sense, then if/when rates are high enough to justify it, I'd use the saved cash to pay down or pay off the mortgage.

Again, it is most likely that I will not remain in my current house for 15+ years, and so cannot reasonably expect to be able to take full advantage of a 15 or 30-year mortgage.

[Former SD resident]

Can anyone recommend their broker? I’m in North Carolina so I can’t use HLS.

[ljinvestor]

Former SD- Why not use PenFed.org They have a 5/5 ARM at 3% and will cover your closing costs up to $10k. The rate can only increase by a max of 2% every 5yrs with lifetime max adjustment of 5%. So worst case scenario your rate would be 5% yrs 6-10 and hopefully you will be back in SD way before 10yrs.

I have used Penfed a couple of times and pretty easy to deal with. Guessing with rates so low that refi would currently take 60-90 days.

[Former SD resident]

Do you have to be a member of PenFed to get those rates? Also, tried calling Absolute Mortage and they are not licensed in NC. Does anyone have any names for me? Thanks

[all]

aimloan.com?

[ljinvestor]

I was also going to recommend aimloan.com as I have had positive experiences with them on investment property loans and they can do business in NC.

You mentioned $265k loan balance and if you have great credit scores and LTV of 80% or less then you aimloan is currently showing 4% on 30yr with only a couple hundred dollars closing costs

For Penfed you have to be a member but you can join an association for $15-$20 to qualify.

[Former SD resident]

has anyone used goodmortgage.com? saw them on the mortgageprofessors.com website, so far they have the best rate of 3.99% with 4K credit, but they have mixed reviews online. trying to follow the advice of if sounds too good to be true it is, but then again HLS said it may be possible to get 3.875% no cost loan.

[Former SD resident]

or amerisave? currently offering 4% with $3430 credit

[briansd1]

I have used ING Direct.

http://www.ingdirect.com/welcomehome/

[Author]

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