Is there really such thing as no cost refinance??

[Kay1]

We've done it twice but both times the bank (Wells Fargo) made the offer out of the blue. The only catch is that we could have gotten an even lower rate had we be willing to pay closing costs.

 

[bellarella]

We are also WF customers. We are planning on moving in 2 years when our HS sophomore daughter graduates. We want to downsize and stop paying 18.5K in property taxes. Just wondering if it would worth it to refinance? Both our credit scores are over 700 but less then 800. Looks like we could save close to $600 per month. Sure is tempting. Right now our APR is 6.375%. Any thoughts?

Yes, it would be worth it if you are eligible for the program people have talked about.

When looking at a refi and a move at the same time the formula is basically if closing costs are less than monthly savings x expected months in the home you should refinance.

 

[AlexTina]

Unless you are doing a modification (with your current lender), there are always costs for a refinance.

For a refinance, there are costs to get the appraisal, credit report, title costs, settlement costs, your new impound account, etc. What is called a "No cost refi" means that you are rolling your costs into the new loan, either by increasing the amount you owe, or by getting a higher rate. The higher rate option allows the lender to pay your closing costs for you by using what's called "premium pricing".

Remember when you are refinancing to consider the term. If you have a 30 year loan, and it's 2 years old, and you refinance it to another 30 year loan at a lower interest rate, you are resetting your term back to 30 years again. Don't forget to consider that when you are determining whether it is really a benefit.

I've been in mortgages for almost 20 years - if you have any other questions.

Credit report, title costs, settlement costs, your new impound account, etc. These are all costs that I expect, what I was confused about is when a bank is offering 0 points and then the expected closing costs run the gammet from 4k - 10k. What are they charging for? I could understand it if you were paying points but if it's supposed to be 0 points it just doesn't make sense to me, Dh and I both have very good credit and we do have equity in our home although it's probably down to something like 10 - 15% at this point (used to be closer to 40%). Got a call from wells fargo last night we'll see what they have to offer once I get back to them, but it will likely be Monday before I can get ahold of them. Thanks for all the replies.

Tina

 

[diznuts]

My refi closes on 10/29 and my first payment is due on 12/1. I ran the numbers and found that if I make my first payment on 11/1 and start the payment clock early that it will shave 3+ months off the length of my loan.

Our closing was 10/1 and we dont have a payment until 12/1...so we got to skip oct and nov. to us it was better to have the cash in hand than length of loan.

 

[luvsvacations]

I am looking at trying to help my mom make a decision on her home. My dad recently passed away suddenly. My sister and her 3 kids currently live in the home with her. She has a 120K mortgage on the house with about 6.5% interest. We went to the bank and he suggested a 3.5% arm - it will not change at all until 7 years are up. I am figuring my nephew will be done with school (he is the youngest in 5 years). SO it will be my mom, sister and my niece (handicapped) and they would move - the house will be to much. Is a 7 year arm a good idea - it will reduce her payments by about $400 a month - big help for them. THere is no penalty if she should move before the seven years or pay off early (cause she won the lottery) HA Thanks for your help I am very torn on what is the best to do. I seem to be the decision maker.

 

[herdtoDisney]

I don't think Wells Fargo offers their no-cost refinancing in every state. They are not offering it in mine, to my understanding. I had them until yesterday, when I closed through my credit union. I did pay some closing costs though-less than $2000, but still...I'm happy in the end.

 

[missenmickey]

I am looking at trying to help my mom make a decision on her home. My dad recently passed away suddenly. My sister and her 3 kids currently live in the home with her. She has a 120K mortgage on the house with about 6.5% interest. We went to the bank and he suggested a 3.5% arm - it will not change at all until 7 years are up. I am figuring my nephew will be done with school (he is the youngest in 5 years). SO it will be my mom, sister and my niece (handicapped) and they would move - the house will be to much. Is a 7 year arm a good idea - it will reduce her payments by about $400 a month - big help for them. THere is no penalty if she should move before the seven years or pay off early (cause she won the lottery) HA Thanks for your help I am very torn on what is the best to do. I seem to be the decision maker.

ARM's (or adjustable rate mortgage) are always risky. If there is some reason they don't move the rate could go way up. Part of the foreclosure problem is that people originally got a loan they could afford. Once the ARM was up and the rate adjusted they could not afford the payment any longer. I suggest they stay away from an ARM loan. Just my 2 cents.

 

[bellarella]

I am looking at trying to help my mom make a decision on her home. My dad recently passed away suddenly. My sister and her 3 kids currently live in the home with her. She has a 120K mortgage on the house with about 6.5% interest. We went to the bank and he suggested a 3.5% arm - it will not change at all until 7 years are up. I am figuring my nephew will be done with school (he is the youngest in 5 years). SO it will be my mom, sister and my niece (handicapped) and they would move - the house will be to much. Is a 7 year arm a good idea - it will reduce her payments by about $400 a month - big help for them. THere is no penalty if she should move before the seven years or pay off early (cause she won the lottery) HA Thanks for your help I am very torn on what is the best to do. I seem to be the decision maker.

It depends on a lot of factors.

1. What is the cap on the ARM?
2. Could they afford the loan at the capped rate?
3. How certain are you that they will move before the ARM adjusts?
4. Can your mother afford to "buy her way out of the house" if she has to sell it for a loss?

From the bit you have written, it sounds like your mother is stretched pretty thin. I think that it makes more sense to get a higher interest rate and refinance on a fixed rate mortgage. A 15 year fixed mortgage should be around 4%, which is still considerably less than the 6.5% she is paying.

 

[luvsvacations]

Yes - there is a cap and at the end of the 7 years it could be 9.5% and he said that would make it about $75 more than she is currently paying. I would say it would get to a point they would have to move - my mom in 5 years will be 81 - she is very healthy now but my sister will be 55 and she works full time - it will be to much. Yes there is money in an IRA it should still be there in 7 years (assuming no catastrophe). It would bring down the payment down now and he said if she paid an extra $100 a month it would really bring the equity up. So confused......about 20K

 

[bellarella]

Yes - there is a cap and at the end of the 7 years it could be 9.5% and he said that would make it about $75 more than she is currently paying. I would say it would get to a point they would have to move - my mom in 5 years will be 81 - she is very healthy now but my sister will be 55 and she works full time - it will be to much. Yes there is money in an IRA it should still be there in 7 years (assuming no catastrophe). It would bring down the payment down now and he said if she paid an extra $100 a month it would really bring the equity up. So confused......about 20K

How many years does she have left on her mortgage now?
What's her monthly payment?
What term is the ARM?

These will help. It sounds like this guy is trying to sell you on a bad product (and I'm not against ARMs -- I did an interest only ARM and it was a smart financial move for us).

 

[luvsvacations]

She has about 18 years left on it. The payments are about $1200 which also includes property - not sure what you mean what the terms are on the Arm - he said something about a 2% cap....but it would not exceed 9.5% by the end of the 7 years. Thanks for your help - apparently I am not asking all the right questions.

 

[bellarella]

She has about 18 years left on it. The payments are about $1200 which also includes property - not sure what you mean what the terms are on the Arm - he said something about a 2% cap....but it would not exceed 9.5% by the end of the 7 years. Thanks for your help - apparently I am not asking all the right questions.

Ok, here are the scenarios I've come up with.

First, that rate for a 7/1 ARM is not that good -- looking on Bankrate, it should be closer to 3.125%, so either the bank is not competitive, or your mom is not qualifying for the best rate.

Based on what you have given, I believe that your mom is paying about $950 in mortgage payments and $250 in taxes and insurance.

It sounds like the 7/1 ARM has a 30 year term (won't be paid off until 30 years). I'm not sure if the 2% cap is referring to the loan being pegged to an interest index (like LIBOR) +2%, or that it can't go up more than 2% each time it adjusts. You should find out how often the rate will adjust. It might be every 6 mos or every year.

Here's how the numbers work out. Note, these are very rough, but should give you an idea of the options.

Current Loan:
6.5%, 18 years left
Monthly payment: $950 + 250 = $1200
Loan amount left in 7 years: $89,000

Bank's Plan:
3.5% 7/1 ARM 30 Year Term, 9.5% cap
Monthly payment now: $540 + 250 = $790
Maximum payment: $1000 + 250 = $1250
Loan amount left in 7 years: $102,000

15 year Fixed rate:
4% (there are ones advertised at 3.5%)
Monthly payment: $890 + 250 = $1140
Loan amount left in 7 years: $73,000

30 year fixed rate:
4.875% (there are lower rates advertised)
Monthly payment: $640 + 250 = $890
Loan amount left in 7 years: $105,000

If your mom can make her current payments, her best option (assuming closing costs aren't outrageous) would be to take the 15 year ARM. She might see $50/month AND $16,000 added to her bottom line when she sells in 7 years, compared to her current loan.

Good luck!

 

[luvsvacations]

Bellara - thank you so much for your help. SO - you think the 15 year fixed is the best - you said 15 ARM so I want to make sure. But what about the 7 year arm and paying an extra $100 month ??? I have never had an ARM and have always been skeptical - be nice to be able to lower her payment AND build equity! Thanks again so much -

 

[bellarella]

So sorry!

Yes, I meant 15 year fixed. The computer lost the post and I retyped quickly and made that error.

If she did the 7/1 ARM and paid $100 more a month to it (making sure that it's applied to principle), she'd owe around $92,000 on her loan if she sold in 7 years. That means she'd owe $4,000 more than she'd owe if she kept her current loan. She'd be more liquid, for sure, but would be paying some of that back in the long run by having more loan to pay back at closing.

The other risk -- and this is one you will have to judge -- is that she might not be able to sell in 7 years time. I see you are in MI and I know how bad the market is in parts of the state. If she can't sell and has gotten used to the extra money per month, it might be really hard to absorb payments that are even $75 more a month than she is currently paying.

You could also check into a 20 year fixed. That might be a good medium between the 15 and 30 -- lowering her payments more, but not as much at the expense of affecting what she'd get back when she sells.

You can run all of these numbers yourself with real rates -- these are very rough and I rounded. This is a good calculator. http://www.bankrate.com/calculators/mortgages/mortgage-calculator.aspx

If you do get an ARM, you want to know what index it is pegged to, how high it can adjust on the first adjustment, how often it adjusts, what the ceiling on the rate is, and whether there is a prepayment penalty.

Good luck!

 

[luvsvacations]

Thanks again so much for your help. I am thinking maybe the fixed is the better route - I will definately check the website you gave me. I sure wish I had the answers to your questions!

 

[chrisvip]

Thanks again so much for your help. I am thinking maybe the fixed is the better route - I will definately check the website you gave me. I sure wish I had the answers to your questions!

I am not an expert on the ARM's but I have always tried to stay away from them unless it's a definite quick flip.

Also checkout the articles on http://freemortgagerefinance.org/no-cost-refinance and http://freemortgagerefinance.org/when-to-refinance-your-mortgage .

 

[njmomtoone]

We are in the process of the no cost re-fi with Wells Fargo. We got a phone call from them, out of the blue. We are paying $10 more per month and going from a 30 year down to a 20, shaving $68K off the loan. I wonder if we will be able to skip a payment too?

 

[neatokimmo]

My credit union offers 15 year 3.25% heloc lines for houses. If your mortgage is 75% or less of your tax assessment then for no fee, they will transfer the line over. They pay the $300-400 to record the loan with the county. It was a great option for me because I have a house for sale. Every month, an extra $201 goes towards the principle.

 

[janey99]

Just got off the phone with our current mortgage holder WF, as a result of this thread, to see if I could get the absolutely no cost refi, and the answer was NO.

My mortgage specialist (who I've dealt with before) said the program is an inducement to keep customers they are afraid they will actually lose, and apparently, I'm not one of them!

In NJ, if I were going from a 30 or a 20 down to a 20 or a 15, I would qualify, but since I want to keep a 15 and just get the lower rate, he said WF knows I won't really go anywhere because no other bank will give me better than what WF is willing to offer me (3.75 rate plus approx 3k in closing fees), and therefore, if I really want the 3.75, I will just do it with them anyway.

How little he knows me - if I can find a bank to shave ten cents off of 3k in closing costs all other T&C being equal, they are getting my business.

Great customer service, Wells Fargo!

Jane

 

[Gr8t Fan]

Just got off the phone with our current mortgage holder WF, as a result of this thread, to see if I could get the absolutely no cost refi, and the answer was NO.

My mortgage specialist (who I've dealt with before) said the program is an inducement to keep customers they are afraid they will actually lose, and apparently, I'm not one of them!

In NJ, if I were going from a 30 or a 20 down to a 20 or a 15, I would qualify, but since I want to keep a 15 and just get the lower rate, he said WF knows I won't really go anywhere because no other bank will give me better than what WF is willing to offer me (3.75 rate plus approx 3k in closing fees), and therefore, if I really want the 3.75, I will just do it with them anyway.

How little he knows me - if I can find a bank to shave ten cents off of 3k in closing costs all other T&C being equal, they are getting my business.

Great customer service, Wells Fargo!

Jane

Ask them what their rate on a 10 year fixed loan is. We went from a 30 to a 15 with Wells Fargo, and they contacted me to see if I wanted to refinance when the rates went down again. I'd already paid about a year on the loan so I told them that I was going to look into refinancing elsewhere because I didn't want to take another 15 year loan and I didn't see that they offered a 10 year fixed. They called me back and gave me a quote on a 10 year and it was only about $75 more a month than I was paying on the 15 year. It's not something they advertise, but they will "find" the rate if they want to keep the customer. Good luck!