UnThreaded | Threaded | Whole Thread (19) | Ignore Thread Prev | Next
Author: Dwdonhoff Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 127262  
Subject: Re: I took E-trade mortgage up on the rate guara Date: 10/29/2001 1:35 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 3
Hi MM, Catherine (and fellow Fools;)

Catherine sez;
On a refi, I would never pay points to buy down a rate or pay costs out of my pocket. If I'm seeking a lower rate, I've got to get it with the lender paying for it--as well as hard closing costs--through rebate pricing. Then, when and if rates go down again, I'll just do it again and it never costs me anything. I bring no money to the closing table, nor does the principal balance increase. This has always been my philosophy but maybe other mortgage professionals have different ways of looking at this.

In general theory this sounds really good... especially the basic premise of getting something for nothing (even when we do understand that it's getting swept in there somewhere...) But there have become a few glitches in this practice overall;

1.) On smaller loans, the percentage rebate necessary to cover all the closing costs becomes prohibitively high. What's the point of a "nothing o/o pocket" loan if you don't really lower your real rates significantly?

2) Even on loans of sufficient size, the most competitive lenders have become wise to the tendency of "no cost refinancers" to feel free to "slide down the scale" and change their loans like changing their socks due to the "non-commitment, non-cost" nature of their refinancings. In order to cover the out-of-pocket costs that THEY incur, they've had to find a way to guarantee they'll get a minimum of interest payments so they're not losing money in the deals. Due to this, most competitive lenders have established "soft* prepayment penalties" that are required when the rebate pricing goes as high as a certain level (typically the levels necessary for zippo-out-of-pocket deals.)

As you can imagine, the soft prepayment penalties kinda put a damper on the "money for nothin'" party. (I'm still hearing about the "chix for free" in the song... don't know where THAT party is though...)

*Soft prepayment Penalties are better explained as "Fixed-Period Refinance restrictions." For a fuller explanation see;
http://leviticus.boards.fool.com/Message.asp?mid=15939174

Cheers,
Dave Donhoff
Mortgage Fool
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (19) | Ignore Thread Prev | Next

Announcements

Useful Resources
Our Home Center has all you need to make buying and owning a home a great experience. Get or refinance a mortgage and much more!
Buying/Selling a Home FAQ

Mortgage Professor
Offsite resource for mortgage questions.
Post of the Day:
Macro Economics

2.1: The Labor Pool Problem
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement