Free Refinancing?

[Followyourfeet]

I've had my current mortgage for almost 3 years at 4%
I have an offer to lower the rate to 3.25% on a 30 yr fixed.
Lender claims all fees will be covered under a lender credit, nothing adding to the loan amount. All I am responsible for is funding my new escrow account, which I would get a refund from my existing one. What's the catch? What do I need to look out for?

Thank you!

[whodidntante]

No catch, but I don't believe things involving thousands of dollars that people tell me on the phone. Go ahead and proceed with the application and ask how soon they'll put all that goodness into writing. There's even a form for the goodness, called a good faith estimate.

[ThankYouJack]

I think you're talking about a no-cost refi. They're worthwhile and I've done a lot of them. The main catch is the interest rate will be slightly higher than if you paid closing costs or took out points. I would shop around for the best no-cost rates

[Spirit Rider]

@ThankYouJack is correct. Never trust someone trying to sell you on something being "free".

[BrandonBogle]

I just refi’d a few weeks ago that after all told, the credit covered everything except some of the prepaid interest from closing to month-end.

When you apply, they should send you a Loan Estimate within 3 business days that outlines that. A few folks in other threads here either just did such a loan or have one in-flight now.

[Followyourfeet]

I've yet to find a better rate
I've been given an estimate with itemized fees... It also shows a 2k lender credit to zero the fees out. I have no interest in tacking additional money onto my loan, and I made that very clear.. feeling very skeptical

[mickeyvee]

Just finished refi with LoanDepot. 3.125% 30 year fixed. Lender credit. No additional cost to me. Saved $278/mo. I know it sounds like an ad. Nope...just a happy home owner.

[Jack FFR1846]

It was a while ago, but I did several no cost refi's. They really, really were no cost to me. So long as nothing is rolled into the loan and there are no items that you pay for that aren't reimbursed. At the time, rates were dropping. Doing this for no cost was the best way to continue to take advantage of lower rates without losing bribe money points and costs. If you plan to keep the loan long term, do the math, if there are bribe money point based rates that are lower.

[123]

The costs of refinancing, including the commission to the mortgage broker, are all built into the rate you will pay. It only looks like its free.

You are not special. Everybody pays.

[MathIsMyWayr]

I have gone through a number of no cost refinancings. The last one was a 2.5% 15 year loan. No cost on me at all.

[playtothebeat]

I just did one in February, and looking at doing it again to drop the rate from 3.875 to 3.5. Sizeable enough for me. Only thing I’ll have to pay for is prepaid interest (which isn’t a “cost/fee”, really, since it’s interest I’d have to pay otherwise).
Another option was to go even lower but pay a little bit in points, which I prefer not to do.
Just don’t reset your term - odds are you’ll end up with a new 30 year loan, but keep paying at the same pace you were before (I.e. maybe you have 28 years left now, so just do the math to see what your payment will need to be).

[marklar13]

The costs of refinancing, including the commission to the mortgage broker, are all built into the rate you will pay. It only looks like its free.

You are not special. Everybody pays.

Except in this case the rate with all the costs baked in is still lower than his existing rate. So, really it is "free" savings -- except for time, and possibly a very temporary loss of liquidity since he has to fund escrow and then get reimbursed from existing account.

So while the mortgage broker is happy making a commission, he can still be happy with his savings. Win/win. Everyone gets to feel special.

[MathIsMyWayr]

The costs of refinancing, including the commission to the mortgage broker, are all built into the rate you will pay. It only looks like its free.

You are not special. Everybody pays.

Except in this case the rate with all the costs baked in is still lower than his existing rate. So, really it is "free" savings -- except for time, and possibly a very temporary loss of liquidity since he has to fund escrow and then get reimbursed from existing account.

So while the mortgage broker is happy making a commission, he can still be happy with his savings. Win/win. Everyone gets to feel special.

So, who is the loser? Investors who hold the mortgage?

[BrandonBogle]

The costs of refinancing, including the commission to the mortgage broker, are all built into the rate you will pay. It only looks like its free.

You are not special. Everybody pays.

Except in this case the rate with all the costs baked in is still lower than his existing rate. So, really it is "free" savings -- except for time, and possibly a very temporary loss of liquidity since he has to fund escrow and then get reimbursed from existing account.

So while the mortgage broker is happy making a commission, he can still be happy with his savings. Win/win. Everyone gets to feel special.

So, who is the loser? Investors who hold the mortgage?

The investor holding the note you pay off. The investor holding the new note wins the new business.

[anon_investor]

The costs of refinancing, including the commission to the mortgage broker, are all built into the rate you will pay. It only looks like its free.

You are not special. Everybody pays.

Everyone wins except the current lender, who loses all those future interest payments from you. So some one gets screwed, just not the borrower!

[Followyourfeet]

I'm told the rate is 3.25 but on the initial disclosure is I see an APR that is slightly higher. If there truly are no fees being added to the loan why would this be? The lender states that this is because of the new escrow. I am planning to fund the escrow out of pocket and wait for the existing escrow refund... So why would this add to my APR. Any advice ?

[barberakb]

just remember to never trust what they say. Always get the details in an official loan estimate.

[xerxes101]

I've had my current mortgage for almost 3 years at 4%
I have an offer to lower the rate to 3.25% on a 30 yr fixed.
Lender claims all fees will be covered under a lender credit, nothing adding to the loan amount. All I am responsible for is funding my new escrow account, which I would get a refund from my existing one. What's the catch? What do I need to look out for?

Thank you!

I think it depends on who is making you this offer. I mean I have heard that Chase is making such an offer to keep their customers from refinancing at other institutions. So if you are getting a call from Chase and you have a Chase mortgage, I would go for it but if someone is just cold calling you with this offer, I would proceed with caution.

[Followyourfeet]

The offer is from the person who originated my loan 3 years ago. It's been sold a few times since but is now with Wells Fargo.

I just can't put my finger in what's going on. He's waving the appraisal, and eating most of the lender credit up by charging a $995 lender fee... I guess it doesn't matter because I'm supposedly not paying any of that.. I'm unsure why the APR is higher than the rate if I'm not rolling anything new into the loan. I'm wondering I'm getting a higher rate for that 2k credit. We have excellent credit, little debt, and good equity in the home, so maybe I need to keep shopping!