The Myth of the No Cost Refinance

Do you want a no cost refinance? Traditional refinance expenses may not be directly charged to the consumer on this loan type creating the impression there is no cost for these services. If you can find a title company to close your loan without charging anything please tell me.

Loan originators are generally compensated in 1 of 3 ways. Fees, points (prepaid interest) & yield spread. The first two are often the best long term solution but may be resented due to their visibility on the GFE & settlement statement. Yield spread is different and may not be disclosed at all! It's the difference between the lenders wholesale rate and what the originator charges on your loan. It's still a cost paid by the consumer.

Increasing the rate above par (break even) results in additional premium (commission) to the originator. This can be used to cover the origination fees of your new loan creating the impression of no cost. If you plan to keep this loan for a few short years it may be less expensive however, the longer you keep it the higher the rate premium becomes.

Example:

$200k with 1% origination = $202k financed @ 6.5% (par) for 30yr fixed payment @ $1,277.00

$200k with 0% origination = $200k financed @ 7.0% (.50 ysp) for 30yr fixed payment @ $1,331.00

In 37 months you will equal the cost of 1% origination fee and continue paying the additional $54.00 monthly till you refinance or sell your property. The higher the loan balance the higher the monthly premium. I'm happy to show you these options and more so that you can make educated decisions.

Greg Zaccagni @ www.MortgageAdvisor.info