04/24/2014
"The Biggest No Brainer In Man Kind!" No matter what AM station you turn to, a mortgage commercial is bound to greet your ears with promises of low rates and low fees or NO fees. The truth is the "No Cost Loan" really is a NO BRAINER... yet the idea is met with apprehension. Somehow, someway the client believes the idea of no fees means a higher rate. (Cue the angels singing and the light bulb illuminating!) YES! A "no cost loan" means a higher rate! But this is not such a bad thing. I would like you to consider the fees associated with a zero POINT loan and standard closing costs (roughly $3000). And then the rate associated with that same loan priced with an interest rate that will allow the loan officer (that's me, by the way...) to credit your fees for the same amount. Usually this increase in rate is about .25%. Now lets set the parameters for our refinance scenario. On a $250,000 loan amount and a rate of 4.375% (reg fees) vs. 4.625% (no fees) the payment would increase $37.14. Yet if you elect to take the lower rate and pay your standard fees it would take you just under 7 YEARS to recoup your original $3000 and begin saving $37.14 per month. That's over 80 payments before you see the benefit of your first $37.14!!! If you refinance your loan or sell your home in that time frame you lost on the lower rate loan. With purchases I often offer this same scenario as a solution to borrowers who are limited on their funds to close. I offer a variation of credits through the higher interest rate to achieve their cash flow limitation. This is definitely a route to seriously consider when performing any mortgage financing.
