Potentially dumb question about mortgage refinances

[janegold]

When people say they refi'd with no closing costs, what exactly does this mean?  Did you get a lender credit in exchange for a higher rate?  Did the bank waive all origination fees?  Did you roll closing costs up into the overall loan amount?  And I assume this doesn't take into account escrowed tax and insurance payments.

(Have been shopping around for refi's today and am expecting pretty significant closing costs so want to make sure I'm not missing something.)

[Cappy]

In our case our rate worked out to be about .25 higher than what I assume we would have been able to get elsewhere. They won't openly disclose that, but we locked at 3% when I know rates were closer to 2.75% elsewhere. In exchange we only pay a $250 application fee + $40 recording fee + the prepaid interest for the month of close. We don't escrow but if we had that would need to be re-seeded. I assume they make their money by selling the loan to arbitrage that .25 but in our experience with this lender they still service the loan meaning no disruption on our end. We've refi'd 2x in the 2 years with this lender which seems nutty but the numbers have worked and we've cut time off our term as well.

[ohgillian]

I think this usually means they are rolled into the loan, so you end up financing them.

[janegold]

Thanks - that's what I would have thought (higher rates, rolled in costs) and I'd rather not do that if we can help it. I've got two lenders who are fiercely competing for our refi so FX we can get a good discount on closing costs - or even better, maybe a lower rate! As it is, we are standing to save about $500 a month from when we bought a year ago!

[Cappy]

Feb 24, 2021 9:36:11 GMT -5 janegold said:

Thanks - that's what I would have thought (higher rates, rolled in costs) and I'd rather not do that if we can help it. I've got two lenders who are fiercely competing for our refi so FX we can get a good discount on closing costs - or even better, maybe a lower rate! As it is, we are standing to save about $500 a month from when we bought a year ago!

If you have the cash to spend on closing costs and know you will stay long enough, go that route. But in our case that would have been maybe 5-7k or more which we didn't have on hand. With the no fee we are shaving 5 years off our loan and keeping the same payment so we still come out ahead vs. staying in the same loan product. 

I like the nerdwallet calculator for comparing refi options.

[janegold]

Feb 24, 2021 10:09:24 GMT -5 Cappy said:

Feb 24, 2021 9:36:11 GMT -5 janegold said:

Thanks - that's what I would have thought (higher rates, rolled in costs) and I'd rather not do that if we can help it. I've got two lenders who are fiercely competing for our refi so FX we can get a good discount on closing costs - or even better, maybe a lower rate! As it is, we are standing to save about $500 a month from when we bought a year ago!

If you have the cash to spend on closing costs and know you will stay long enough, go that route. But in our case that would have been maybe 5-7k or more which we didn't have on hand. With the no fee we are shaving 5 years off our loan and keeping the same payment so we still come out ahead vs. staying in the same loan product. 

I like the nerdwallet calculator for comparing refi options.

Yes, we've definitely been in the position before where it made sense to trade off closing costs for a higher rate.  This could be our forever house, and we have the cash, so this time around I'm focused more on the long run.  I just wanted to make sure there weren't some secret lender offers that everyone was taking advantage of that I didn't know about.

That being said, both of the lenders came back with sizeable credit offers (though one offer was over 3x more than the other's) without increased interest - so yay!

[Mushe]

We just closed a refi through LenderFi and I think it was essentially no cost? We closed at 2% for a 15 year. They gave us a credit for some costs, and we didn’t need an appraisal. We had to pay about $7k to prefund our escrow account, which we don’t have to use but do because it’s convenient, but it’ll balance out when our old escrow closes.

[flygirl]

Essentially they put it somewhere,,,either in the rate or roll it into the balance. There are instances -like LenderFi that are looking to grow their business and will waive a lot of it for well qualified applicants.
A friend of mine tried to tell me that I was getting ripped off by paying minimal closing costs and then when discussing rates, etc, hers was .5% higher than market. They don’t work for free.

[froggy76]

I've refinanced twice in the last year with little to no closing costs. Both times I selected a higher rate in exchange for a lender credit. I felt it made sense because I hope to have the loan paid off in about 5 years. I had a spreadsheet to compare options. In one, the lender credit was actually so big that it was more than the closing costs, which means the mortgage company effectively paid me to refinance to a lower rate.

I also liked that I didn't pay closing costs because I decided to refinance a second time shortly after the first because rates had continued to go down. If I had paid closing costs on the first refi in exchange for a lower rate, I would have lost several thousands of dollars for nothing.

Keep in mind you'll still have prepaids and escrow, but that's your own money, and you'll get your current escrow balance back from your current lender once your existing loan is paid off.

[fryjack2]

janegold , we loved our SE broker and used him for a decade. But he couldn't match the rate we got last summer, despite doing all he could, so we went with a new guy. Let me know if you want his info, he was great. got his name from a poster here

We are at 3% for a jumbo loan and we paid some closing costs that were essentially fees that sometimes lenders waive. It wasn't crazy and we decided not to roll them into the loan.

We had all the costs spelled out and they were pretty straightforward and in line with what everyone else would charge.

[janegold]

Thanks fryjack2! We locked yesterday at 3% on a jumbo too (plus lender credits that I hope will mostly cover the non pre-paid closing costs), and although I had been hoping we could get sub-3, I never saw the rates that low for a jumbo so I'm happy. Glad to hear it's in line with what you were able to get, too.

[ohgillian]

Feb 25, 2021 9:32:33 GMT -5 janegold said:

Thanks fryjack2! We locked yesterday at 3% on a jumbo too (plus lender credits that I hope will mostly cover the non pre-paid closing costs), and although I had been hoping we could get sub-3, I never saw the rates that low for a jumbo so I'm happy. Glad to hear it's in line with what you were able to get, too.

Congrats! That’s a great rate.

[steamboat185]

We’ve done this a few times and they rolled it into the rate, which was still better than what we had been paying. They also gave us a credit of a few thousand dollars. So yes we could have possibly found a slightly lower rate elsewhere, but the other 2 places couldn’t meet the rate we were offered through the zero cost option.

[k3am]

We locked for 2.875% on a jumbo (just over a million) a couple weeks ago. The lender told us the day after we locked that rates went up but I'm not sure how much higher.

[fryjack2]

Feb 25, 2021 13:33:49 GMT -5 k3am said:

We locked for 2.875% on a jumbo (just over a million) a couple weeks ago. The lender told us the day after we locked that rates went up but I'm not sure how much higher.

Thats incredible! The only place I could find that did sub 3 was not available in my state.