Low Rates Create a No Cost Refi Opportunity
Posted On: March 23rd, 2010 by James Posted In: Financial Health • Mortgage Programs • Mortgage Rates
Rates are so very low right now that many borrowers have an opportunity to refinance into a lower interest rate and have ALL associated costs paid for by the lender rebate. Now, not every client has this opportunity, but I would say that more than half of my refinance clients have the ability to make it happen. The good thing is, that even if the difference in rate is very slight, it is still a benefit to the borrower as that lowered payment came to them at no cost. From a borrowers perspective it is quite literally the experience of “sign here” (x 100)… and here’s your new lower bill, like having your RENT lowered only better!
No-cost refinances use excess Yield Spread from the lender to use as a credit for the borrowers non-recurring closing costs. I have found that most refinances carry anywhere from $3300 to $3900 in non-recurring closing costs when you add up all items such as lender fees, appraisal, credit report, title, escrow, recording and any other misc fees that are involved. There are two things you need to be aware of. First, the borrower, by foregoing the fees will get an above market interest rate by anywhere from .25% to .5%. Also, the loan amount needs to be large enough to create enough commission on the transaction. For example: A $300,000 loan amount will more quickly cover the fixed costs than a $150,000.00 loan amount because the lender yields are a percentage of the loan amount. As a result these lower loan amounts are more difficult to make cover that fixed cost.
Since there are no expenses incurred from doing the refinance, there is no break-even period where a borrower will start to save money. For instance, if a borrower currently has a rate of 5.75% on a $250,000 loan and are paying a principal & interest payment of $1,458 and you can lower the rate to 5.375%, the payment can be lowered to $1399. Now, in almost all cases the actual monthly cash flow difference will be more because the principal balance would be less as the borrower will have paid it down since their current loan started…but the interest savings alone is about $60 per month.
This savings can then be applied to principal reduction if the borrower decides to continue to make the same payment as before. In many cases MASSIVE interest savings over time can be created by doing this, as many years can be shaved off the loan term.
Please apply online, or contact me for a quick analysis to determine if this is something that you and your family could benefit from. Anyone who’s rate is in the high 5% range is a potential candidate… Lets Talk!
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[...] borrowers who find themselves in this position, I only suggest a “no-closing cost mortgage refinance”. This will potentially get them a lower rate without any upfront costs, and put them in an [...]
[...] is a potential huge savings. We put together a maximum conforming first mortgage of $417,000, (with no closing costs) at a rate of 5.375%, and a second mortgage home equity line of credit at 4.5%. for the remaining [...]