Has anybody done this type of "No Cost" refinance (insurance, loan officer)

[sierraAZ]

1) Use the "yield spread premium". Under this no cost refinance program, we will pay all of the closing costs associated with your loan for you. You incur no cost in the refinance transaction. We use the "yield spread premium" from slightly higher than market interest rates to pay these costs for you. We can pay both your closing costs (the true cost of the transaction) and prepaid items (escrow items for taxes and insurance), many of our clients using the no cost refinance program decide to have us pay only your closing costs. This is because your current lender has an escrow account with approximately the same amount we will require to establish a new escrow. Your current lender will refund their escrow account usually 30 days after closing. If you want to settle with no cash, we can pay both your closing cost and escrow, you will get a refund in about 30 days effectively taking some cash out of the property but your interest rate will be higher.
Depending on your loan amount, a "No Cost" refinance is typically .375% higher than our zero point, no origination fee quote. The beauty of the program is that you can lower your payment at any time the no cost refinance rate is lower than your current rate. The old "rule of thumb" was that you had to lower your rate by 2 percentage points for refinancing to make sense. Using the "no cost" approach, I frequently have clients lower their rate and payment when the "no cost" rate is only .500% lower than their current rate. There will never be a prepayment penalty so you can lower your payment at any time it makes sense.

No Cost Refinance Program explained in detail

That's what I'd like to do. If other people are getting 4.625%, I would be happy to have 5% or even 5.25% under these circumstances.

[dad2jules]

This is how all no closing cost loans work. Higher rate = higher premium to broker- pay your closing costs with some of the premium and keep some for themselves instead of origination fee.
Like anything in the mortgage world there is no 1 size fits all answer- this is good for some people and bad for others. Take closing costs and divide by the payment savings between the 2 scenarios- this will tell you how many months it will take you to recoup the closing costs through lower payments. If you plan on being in the home for 150% of that time pay the closing costs because it is better for you in the long run.

[sierraAZ]

Originally Posted by dad2jules

This is how all no closing cost loans work. Higher rate = higher premium to broker- pay your closing costs with some of the premium and keep some for themselves instead of origination fee.
Like anything in the mortgage world there is no 1 size fits all answer- this is good for some people and bad for others. Take closing costs and divide by the payment savings between the 2 scenarios- this will tell you how many months it will take you to recoup the closing costs through lower payments. If you plan on being in the home for 150% of that time pay the closing costs because it is better for you in the long run.

Not too many people share such experiences, though, and when I was talking with Chase today (my current lender) the idea didn't seem to go through.... He suggested increasing the loan amount, but I don't want to do that. Then again, I haven't crunched numbers yet. Might still make sense. I haven't refinanced before and I'm not really in any dare need (not too bad of a rate 5.875%), but it's worth exploring some options.

Basically it's the same thing as I did going with the builders' lender a little over a year ago. At the end I was tempted to get 5.25% with another lender and pay the closing costs myself; however, it turned out I won't break even for good 10 years and I figured it wasn't worth it. I thought refinancing should be less expensive...

[AndrewSoss]

The closing costs that they are covering with that .375% are usually around $2,500-$3,000 depending on loan size and location of the property.

Take the loan amount times .375% and that's your annual cost doing it this way.

If you have a $250k loan, it would cost you $940 a year. So, you would need to have this loan for 3 yrs to breakeven.

On a larger loan, the breakeven would be shorter, on a smaller loan it would be longer.

It's really just a math problem. When I quote to someone, I give them every option at every rate on a spreadsheet...something like this:

Rate Pts
4.250 2
4.375 1.75
4.500 1.50
4.625 1
4.750 .5
4.875 0
5.000 (.25)
5.125 (.50)
5.250 (1.00)

I then let then know that a negative number would simply be a credit toward their closing costs of $x,xxx.

From there, I can help them determine which rate would be the best depending on their circumstances.

Any Broker/Loan Officer who doesn't do this kind of analysis for you is likely trying to push you on something for their benefit, not yours.

[dad2jules]

Originally Posted by AndrewSoss

The closing costs that they are covering with that .375% are usually around $2,500-$3,000 depending on loan size and location of the property.

Take the loan amount times .375% and that's your annual cost doing it this way.

If you have a $250k loan, it would cost you $940 a year. So, you would need to have this loan for 3 yrs to breakeven.

On a larger loan, the breakeven would be shorter, on a smaller loan it would be longer.

It's really just a math problem. When I quote to someone, I give them every option at every rate on a spreadsheet...something like this:

Rate Pts
4.250 2
4.375 1.75
4.500 1.50
4.625 1
4.750 .5
4.875 0
5.000 (.25)
5.125 (.50)
5.250 (1.00)

I then let then know that a negative number would simply be a credit toward their closing costs of $x,xxx.

From there, I can help them determine which rate would be the best depending on their circumstances.

Any Broker/Loan Officer who doesn't do this kind of analysis for you is likely trying to push you on something for their benefit, not yours.

Absolutely true.
You should get 4 rates from a loan officer minimum.
1- with all closing costs and discount
2- with all closing costs and no discount
3- with closing costs and no originaiton
4- no closing costs

The broker compensation for all 4 options should be the same so the decision should be based solely on what benefits you the most based on your plan to continue to own the home.

[sierraAZ]

Well, I just talked with Chase (current lender). They don't do loans like this and even if they did the rate wouldn't make any sense since he quoted me 6.375%!!! for 142K loan, 30y fixed, no points, with 808 score. He said the people who get those under 5% rates pay points. Well, I don't know how many points you'd have to pay to get from 6.375 to 4.625... Somebody posted this yesterday, but didn't mention if it were for 30y or 15y and how many points he/she paid. Anyway, I've no desire to do that as my current rate is 5.875.

I'll see what one more place has to say on Monday, but it doesn't seem to be working out so far...

Thank you, all participants!

[sierraAZ]

Originally Posted by AndrewSoss

4.875 0

Is this current or just an example? I know for some unknown to me reason smaller loans get higher rates, but I can't seem to find anything closer to that as I mentioned in my other post.

I'm also not sure if the house will appraise for 80% LTV, so I guess I'll probably let sleeping dogs lie unless something better comes up on Monday. The guy I'm waiting to hear from used to work for a direct lender and I've worked with him before. Now he's a broker.

[AndrewSoss]

Originally Posted by sierraAZ

Is this current or just an example? I know for some unknown to me reason smaller loans get higher rates, but I can't seem to find anything closer to that as I mentioned in my other post.

I'm also not sure if the house will appraise for 80% LTV, so I guess I'll probably let sleeping dogs lie unless something better comes up on Monday. The guy I'm waiting to hear from used to work for a direct lender and I've worked with him before. Now he's a broker.

The smaller the loan, the more difficult a no point no fee refi is. The reason is that there simply inst enough rebate to cover the fixed costs at a normal rate.

Yes, that rate was current when I quoted and it probably the same now, but it was assuming low LTV, good credit, etc...

[sierraAZ]

Originally Posted by AndrewSoss

The smaller the loan, the more difficult a no point no fee refi is. The reason is that there simply inst enough rebate to cover the fixed costs at a normal rate.

I had this impression, too. I don't know who makes the loans I originally described, but I haven't found any.

I gave up. Don't feel like spending $450 only to find out the house doesn't appraise or I don't like tomorrow's rates. I'm guessing the appraisals don't work the same way under different circumstances. [When I needed to negotiate with the builder it appraised like a charm for way more than it should've and that was done even by the independent appraiser I hired for a second opinion. Dog doesn't eat dog in this world...] Besides, the tax implications don't appeal to me. I'd get the same results paying down principal. It just takes discipline and today's market is not very conducive to motivating me... It feels like filling a bottomless bucket. Same goes for the 15y mortgages. You're forcing yourself to pay more instead of having some flexibility and exercising your will power. I still would get a 15y mortgage, though, if I could comfortably afford it; however, it's too risky for me in these uncharted waters.