Starting 2016 by Ditching the Serial Refinancing Persona

[Anonymous]

“no cost loan”

LOL

[bewildering]

[quote=HLS][quote=harvey]Did all the refinancing really pay off? Typically a refi takes a few years before the interest savings is break-even with the costs. Seems unlikely that one would come out ahead with several refinances….[/quote]

When getting a no cost loan and refinancing to a lower rate it, you start to save interest and benefit from day one; the day your new loan funds.

There is no future ‘break even’ period, you just need to understand the options when refinancing.[/quote]

This was my experience. My first refi was to 4.0%, but the rates that day were 3.9%. The bank offered me money to take 4% instead of 3.875%. My second refi was to 3.625%. And the rates that day were 3.55%, and i took the money the bank offered to take 3.625%. In both cases the refi cost me nothing. Also, the second refi got rid of the remaining PMI by dropping the LTV to 70%. All within 12 months.

[svelte]

[quote=HLS]

When getting a no cost loan and refinancing to a lower rate it, you start to save interest and benefit from day one; the day your new loan funds.

There is no future ‘break even’ period, you just need to understand the options when refinancing.[/quote]

That only works if the payoff date doesn’t move right and your loan balance doesn’t increase. If either of those is true, then there is still a break even period, since:
(a) you’ll be paying longer (if payoff date is further out)
or
(b) you’ll get less in your pocket when you sell (if loan balance went up)

[HLS]

[quote=harvey]”no cost loan”
LOL[/quote]

Oh Harvey,
How sad that you are LOL’ing.
No cost loans exist and if you never refinanced
to a lower rate with one then there is nothing to laugh about, you should be crying instead as you are wasting many thousands of dollars in interest over the life of your loan.

It’s really sad that you would make such a comment.
I’m not sure who/where you get your financial advice.

No cost loans exist and means your loan has NO COST. Lender credits pay ALL closing costs.
If you start with a $300,000 loan your new loan will be $300,000 and you don’t pay a penny in charges/costs to refinance.
It’s not a gimmick or a trick.
In many cases borrowers got money back in addition to a no cost loan.

Mortgage brokers gave people money back.
Many banks didn’t give people money back.

Ignorance, stubborness & foolishness about the biggest financial commitment of one’s life is nothing to LOL about.

Many people get confused about no cost loans but never bother to ask questions/have it explained and are wasting tens of thousands of dollars in interest.
(Instead they just LOL at the thought)
I bet that you think ‘banks’ have the best mortgage rates.

Lowering one’s rate by just .25% at no cost
would mean saving a bunch with most CA loan amounts.

[Coronita]

[quote=harvey]”no cost loan”

LOL[/quote]

No cost loans have slightly higher rates But I think at one point I ran through a bunch of spreadsheets and as long as your 30 year refinanced rate was .25% or lower year your previous rates during the first 10 years of the loan, you still came out ahead in total interest paid. On a 15year, I didn’t bother to run the same numbers simply because on a 15year, much more of your principle gets paid down upfront. And my refinances were always when rates were lower by at least .25% and I typically kept the loan between 2-3years.

Times change and financial plans change too. Its kinda of waist that I threw away 2.5%/mortgage but I sort of want to take less risks this year in terms of investments. And part of that I want to stop bleeding $2600/month on something that doesn’t generate income. So I’ll take the 2.5% return paid to myself.

Eliminating the only mortgage on a rental would be ideal too, but that cash flows $300/month after the mortgage, so why bother.

Plus i want to setup myself in case home prices do correct and i do find something interesting either as a primary or rental. I can borrow more now 🙂 as it was explained to me, I was almost.making out on the number of.loans I’d be able.to qualify for. So I wait.

[an]

[quote=harvey]”no cost loan”

LOL[/quote]
As flu and HLS have stated, yes, they do exist. I took advantage of it many times. I did one better, I got credit to pay for my property tax and insurance as well. So for a couple years, I did about 2 refi each year. So over that 2 years, each time I refi, I reduced by interest rate AND I didn’t have to pay a dime in property tax or insurance. How’s that for a no cost loan. Or more precisely, they’re paying me to save money.

[Anonymous]

[quote=bewildering]My first refi was to 4.0%, but the rates that day were 3.9%. [/quote]

So your “no cost” loan cost you 0.1%

There are scenarios where one can come out slightly ahead in cash flow if they take a “no cost” loan and pay if off before the full term. But then there is the opportunity cost of paying off a low-rate, long-term loan early, which the “pay off my mortgage early” crowd always ignores.

And any mortgage broker claiming that a loan is “no cost” is just plain misleading…

[Coronita]

[quote=harvey][quote=bewildering]My first refi was to 4.0%, but the rates that day were 3.9%. [/quote]

So your “no cost” loan cost you 0.1%

There are scenarios where one can come out slightly ahead in cash flow if they take a “no cost” loan and pay if off before the full term. But then there is the opportunity cost of paying off a low-rate, long-term loan early, which the “pay off my mortgage early” crowd always ignores.

And any mortgage broker claiming that a loan is “no cost” is just plain misleading…[/quote]

Yeah, there’s also opportunity cost of not making an investment in a higher return. There’s also the opportunity cost of picking the wrong investments and losing more than if you just paid down your mortgage.

As much as I’d like to think I can always be correct and pick the right stocks/equities/investment, last year taught me I can’t really beat the markets. And last year, dow was flat to slightly negative.

Also, the opportunity cost of a “safe” CD is like 1% return, unless you ladder them…That’s still lower than most people’s mortgage rate, so simply holding onto cash you really aren’t losing that much opportunity cost. You can take a chance that eventually rates will rise above mortgage rates. I personally don’t know when that will happen. Maybe 5 years, maybe 10 maybe 15.

That said, most of the rest of you can probably beat the 2.5 to 3%. over a longer period of time, if I didn’t have so much already tied in equities, I probably would have taken the risk and stuck it out.

[cvmom]

[quote=moneymaker]Also just thought I’d put this out there, there is a site called nixle that will connect you to emergency alerts via text or voice alerts, just signed up to it.[/quote]

I know it is OT, but I recently killed my nixle subscription due to too many middle-of-the-night notifications of child abductions. I know it must be awful to have a child abducted, but I am not going to be able to do much to help at 2am…

[HLS]

[quote=harvey][quote=bewildering]My first refi was to 4.0%, but the rates that day were 3.9%. [/quote]

So your “no cost” loan cost you 0.1%

There are scenarios where one can come out slightly ahead in cash flow if they take a “no cost” loan and pay if off before the full term. But then there is the opportunity cost of paying off a low-rate, long-term loan early, which the “pay off my mortgage early” crowd always ignores.

And any mortgage broker claiming that a loan is “no cost” is just plain misleading…[/quote]

There are facts and there are opinions.
The FACTS are simple:
1. A no cost loan IS a no cost loan, it’s not misleading and can be explained properly.
2. It’s always better to have a lower interest rate on any debt.

The problem is that most people don’t understand the options associated with NO COST refinancing and turn a beneficial refi into a worse situation.

You completely misunderstood (and twisted) what bewildering said.

Based on facts, I can make 100% guarantees about future payments, projections and cash flow if people listen to explanations and follow through.

There are multiple ways to benefit from a refi and if one only makes the minimum payment and resets the term to 30 years, it may not be a better loan.
HOWEVER, this is a choice by the borrower.

Refinancing to a lower rate at no cost is ALWAYS a better situation for the borrower. There is no payback period or spreadsheet required.

The confusion is that most people don’t get a proper explanation about the choices of benefits
and financial ‘experts’ like Suzie Orman & Dave Ramsey that many people listened to never seemed to
understand these benefits & choices either and gave crappy advice about mortgages & refinancing.

To say that there is no such thing as a no cost loan is just 100% WRONG and on $400K-$500K loans, interest savings of $30,000-$50,000 or more over the life of the loan are very possible, depending on the difference in rate (at absolutely ZERO cost)

[Anonymous]

There is no such thing as a no cost mortgage loan.

A “no cost” loan that does not explicitly state the costs in today’s dollars is really a “hidden cost” loan.

There are transaction costs involved in financing real estate: appraisal fees, underwriting fees, notary fees, etc. … the loan process requires people who provide services and they don’t do it for free – even the helpful mortgage broker needs to get paid. This money has to come from somewhere. One can shop around for lower costs but the cost for these services will never be zero. The borrower will always incur some of the transaction costs when borrowing.

A borrower can pay for these things up front or they can finance the costs. If the costs are financed, they may be added to the note directly or they may be hidden in the form of a higher rate. A “no cost” loan means that the costs do not need to be paid up front, but the borrower still pays.

In the example above, where the borrower paid 0.1% more than market rate for a “no cost” loan, on a $500K note the additional interest cost would be about $41/month initially (and would decrease over time as the principal was paid down…)

HLS and I are very much in agreement on this point: If someone offers you a “no cost” loan and the rate – including the premium for “no cost” – is below your current rate, the decision is a no-brainer: You will benefit if you take the loan.

However, keep in mind that there may be even better alternatives. A loan with explicit upfront costs will likely have a lower rate than one with hidden costs. Which one is better?

The only way to to compare apples to apples is to know the true cost of the loan: considering both fees and rate. Understanding the cost of a “no cost” loan requires a spreadsheet and some Finance 101 skills. Most people don’t have these skills, and that’s the reason that “hidden cost” loans exist.

[HLS]

Stated correctly, there is no such thing as a FREE loan but there are NO COST loans.

A no cost loan has no hidden costs, there is nothing added to the loan balance. All 3rd party costs are covered by a credit from the lender and it’s that simple. It’s not a trick and it’s not a gimmick.

It’s 100% inaccurate to say that there is no such thing as a no cost loan

Strict Regulations require that mortgage brokers show all cost/fees AND the credit from the lender that covers them.
(A bank or direct lender does not have to show these figures)

Could you get an even lower rate by paying something up front or adding to your loan balance?
YES, but it often has a 5 to 10 year payback period and up to the borrower to decide if it’s worth it. That’s a different discussion than whether no cost loans exist & it doesn’t require a spreadsheet or Finance 101 skills to understand a no cost loan.

Also, a no cost loan at a lower rate is NOT a no brainer without understanding your payback terms.
It can end up costing you more even at a lower interest rate!

One needs to fully understand how they are benefitting from the refi.
You just need an explanation that allows you to understand the benefits.

It can be made way more complicated than it is.

[Author]

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