I'm literally paying nothing. My loan rate goes from 7% down to 6.125% for absolutely free. When I say this, I mean free. No equity is coming out of my loan. In fact, I should be able to use some of the credit I'm getting to pay down a very small portion of the loan. I will be saving about $270 per month with 0 month payback period.
I plan on refinancing one more when they seem to have bottomed out, but this seems to be a no brainer, right? Is there any reason NOT to do this?
Is there ever a reason not to accept a lower mortgage rate when my current mortgage company is willing to take care of all costs?
byu/lseraehwcaism inpersonalfinance
Posted by lseraehwcaism
16 Comments
If you’re getting a true no cost refi, it means better rates are available elsewhere
What is the term for the refinance. For instance are you 5 years into a 30 year mortgage and the new mortgage is 30 years?
The refi will probably have closing costs. Be sure to read the fine print. They don’t offer refinancing if they don’t have a way to get some money out of the process.
I would consider how long you are staying, and I would check the principal payments on each. If you are many years into the current loan, you might have significantly more going to principal than a new loan that is pushed out another 30 years. You might be saving $270 on your payment, but losing on what is going on principal. If the loan is less than 5 years, it might not be a big difference, but I would at least look and consider if it changes things.
It depends. But you really have to look at what the actual terms are because many times with their offer is a new 30 year loan if you say a few years in and basically making it seem like a much better deal than it is because they’re likely still charging you closing cost spread out over the new loan with the lower interest rate. With the lower interest rate and lower payment it might still be worth it even if it is a new 30year term. However, keep in mind that typically when your mortgage company reaches out it’s because they’re desperately trying to lock you in to a lower interest rate before you end up refinancing with someone else at a lower interest rate. This happens whenever the market adjusts and you should consider it, but I would also highly recommend you reach out to one or two other places and see if you can get a better offer.
They may want to have you start all over again with a 30 year mortgage.
In my experience, nothing is free. Make sure the loan principal doesn’t change for the refi. Nothing out of pocket is very different than free.
I’d shop around to see what is available. I also suspect that lower rates are on the horizon, but you can’t wait forever.
If they truly aren’t rolling any costs into the new mortgage, the main concern is restarting the mortgage length. If you are 10 years into a 30 year mortgage, for example, make sure the new one is for 20 years.
My goal is to have the mortgage paid off before I retire.
when you look into this, make sure the new mortgage is Not another 30 year mortgage, because that would extend how long you have to make those payments.
make sure the number of years on the new mortgage would be less years then how many years you have left on the current one.
several years ago i refinanced my mortgage.
there were a few thousand in costs & fees, but they bundled those right into the mortgage loan, the result was:
a lower interest rate.
a lower term length. (20 years vs the 23 years that was left on the original mortgage).
a lower monthly payment.
there was No down side other then 1 had to miss a half a day of work to let the appraiser into the house (and i think i had to pay that appraiser directly, as that couldn’t be bundled into the new mortgage by law).
because the 20 year mortgage that were offering was lowering my monthly payment by a couple hundred dollars, i asked about a 15 year mortgage too, it had a even lower rate(but only by like .05%), however because of the 5 years less duration, it would have raised my monthly payment by around $100 instead of lowering it $200.
I was talking to my friend about it afterwards, because there was absolutely No downside, several of them refinanced few months later too.
If you have been paying on your existing mortgage for a few years, and are refinancing to a new 30 year mortgage, this is much less of a good deal than it seems. You might actually end up paying more interest over the life of the loan than if you simply kept the existing loan.
A better strategy is to refinance only when you can get not only a better rate, but a shorter term with roughly the same P&I payment.
I just refinanced at 5.25%, it’s a VA loan though. No VA funding fee, no buy down, and didn’t reset the loan length. I was also unsure because it seemed too good to be true, but everything went through without issues
Assume you have a 30 year mortgage. You are in year 15, and you are offered no cost refi with lower interest.
The down side (could very well be) –>you again have a 30 year mortgage.
>In fact, I should be able to use some of the credit I’m getting to pay down a very small portion of the loan.
So you are proposing a cash-back refi and then you are going to use some of the cash back to pay down some of the principal? Why not just take slightly less cash back in that case?
If nothing else, you are resetting the 30 year clock on when you will eventually pay for the house. But that could be mitigated by paying a little extra each month so it is not a big deal, I guess.
I would strongly assume that if you look carefully, it’ll be a new 30 year term. Which is fine, but ONLY if you continue to make the OLD payment amount toward the loan (actually will shorten the loan even further due to the rate difference). Otherwise you *may* pay more interest overall, and will have a higher balance when you go to refinance again. I’d take the offer, but also shop around and ask if they can come closer to any meaningful competitor rates to keep your business. But don’t mention that you’ll make higher principal payments.
Look closely. I was supposed to get a “free refinance” but what it really meant was “no origination fees.” There are other 3rd party costs such as title recording (because a refinance is a new loan paying off the old loan, which means there is a wire fee as well). Its stupid they cant just change the rate. So if this is truly a “free refinance” as mine was not, then the mortgage company would be eating a couple thousand in additional costs as they still have to be paid to the other companies. You should ask yourself with that, where are they making money? Its likely in the rate. Even though they are getting you a better rate than you have, there are likely better rates available.
Also, be sure to look at the $270 a month correctly. Lets say your current paymebt is 3k, and now its 2730, but you were 4 years into your 30 year mortgage. The refinance is for a new mortgage, so assuming it was 30 years, you would be adding 4 years back on to your loan. Just be sure to look at all thr numbers because the reduction in payment can be deceiving.