Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Spekulatius who wrote (14913)	11/8/2003 8:05:17 PM
From: JBTFD	Read Replies (1) \| Respond to of 306849

You sure they didn't stack the fees into the loan? If not, it makes me wonder why they even bothered doing the loan, unless you are a good (wealthy) customer.

To: Spekulatius who wrote (14913)	11/8/2003 8:07:47 PM
From: Tradelite	Read Replies (1) \| Respond to of 306849

<<The interest rate was about 1/4% higher than the best conventional loan with about 1500$ closing cost but since it was a free refinance that did not bother me. Hard to believe but true. >> Did you select the higher-rate loan only because of the "free" settlement? If so, did the lender take the time to explain that you were actually rolling all customary one-time settlement fees into the long-term cost of your entire loan?

To: Spekulatius who wrote (14913)	11/8/2003 9:23:36 PM
From: Mr. Sunshine	Respond to of 306849

<<...there are actually free refinances. I did a no cost refinance through Wells Fargo a few month ago at 5 3/8%.>> Congratulations! You did well. Was that a 15 year loan or a 30 year loan? You did not say what the loan amount was, but I will use a $200,000 30 year loan to demonstrate how this "free" loan will cost you more in the long run. WARNING - NUMBERS FOLLOW! On your 5 3/8% (5.375%) loan, you will pay $10,750 interest per year, or $895.83 per month. At 5 1/8% (5.125%), (what you said a comparable loan with $1500 costs would be at) you would pay $10,250 per year, or $854.17 per month. By saving $1500 now, you are paying $500 per year more. You will "break even" in 3 years. If you keep the loan for 30 years that extra 1/4% will cost you over $11,000, or over $9500 after the $1500 is subtracted. For amounts over $200K the cost of your "free" loan would be even greater, less than $200K it would be less. There are other considerations - i.e. the extra interest should be tax deductible, and I did not calculate amortization, but your loan was NOT "free". You DID do well, and if there is any chance of you moving, refinancing again, or paying the loan off early, then the "free" route was a good way to go. But if you intend to make the standard payment and live in the house a long time, paying the $1500 would have saved you a little money. Another way to look at it is like this: Say you paid the costs by adding the $1500 onto your loan, so in this example the loan is $201,500 at 5.125%, with no money out of your pocket, instead of $200,000 at 5.375%. Your yearly interest on the former is $10,326.88, the latter $10,750. Either way, there is no money out of your pocket, but the "free" loan is costing you $423.12 per year. The banks know this, know very few people read my posts on this board, and know most people will jump when they here the word "free", and so make a little extra profit. I give my clients all options, listen to their situation, and make recommendations based on what is best for them rather than what is best for the bank.