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

To: Spekulatius who wrote (14938)	11/9/2003 12:24:37 PM
From: MoneyPenny	Read Replies (1) \| Respond to of 306849

I received this offer as well. Unfortunately for me Florida condominiums were not eligible. I was very disappointed. MP

To: Spekulatius who wrote (14938)	11/9/2003 12:32:03 PM
From: Tradelite	Respond to of 306849

Spek...no one is saying you would have money added to the PRINCIPAL on your loan. You did have it added to the interest rate you're paying. You selected a loan at a higher interest rate in order to avoid upfront loan/settlement fees. Very simple, and perhaps it was advantageous for you, depending on how long you live in the property and keep the loan, as Steve Hales pointed out in his numerical analysis. It has always been possible to do this--meaning borrowers (all mortgage borrowers, not just refinancers) can opt not to pay points on a loan upfront in cash and instead roll the expenses into the loan by paying a slightly higher rate. The important thing is that the borrower UNDERSTANDS he's not getting anything for free in this scenario. I personally chose to pay the points on my loan upfront, because I knew I'd be in the house a long time. Didn't want a higher interest rate stretched over 30 years when I first bought the house, and 15 years when I refinanced the loan many years ago. Conversely, a person who knows he's probably going to live in a house for 5 years or less should probably go ahead and roll points and other closing costs into the loan, saving cash upfront. It all depends on individual needs and circumstances. But as the article I posted on this subject yesterday points out, you don't get anything for free in a mortgage borrowing or refinance situation--"you just get to pick your poison", as the Gumbinger fellow from HSH was quoted as saying. Frankkly, it looks like a marketing miracle that loan officers can so firmly convince borrowers that the loan officer's services are free and all other costs of a refinance were paid by someone else, other than the borrower. Someone had to pay local taxes just to record your new deed at the county courthouse after the refinance, and someone had to pay someone to even draw up your new deed and all the loan papers you signed.

To: Spekulatius who wrote (14938)	11/9/2003 1:17:03 PM
From: GraceZ	Read Replies (1) \| Respond to of 306849

You must live in a state where they aren't required to break out the true cost of your loan. The cost was the additional 1/4 point in interest. They apparently covered those expenses which exist in every refinancing in exchange for that extra 1/4 point. On a 300k 15 year mortgage the difference can seen by figuring the interest expense on the first five years as well as over the life of the loan. With 5.125 you would pay $67,741.12 interest in the first five years, on a 5.375 you would pay $71,205 first five years a difference of $3464.00 for the higher rate. The difference is slightly higher for a 30 year loan in the first five years and significantly higher over the life of the loan. Now let's say you instead opted for the 5.125 with the $1500 up front cost. The real difference can be expressed in what you would have received in interest on that $1500 during those first five years as opposed to what you paid in extra interest. I find most people are getting less than 1% on their bank funds now which is less than the inflation rate and a negative yield once taxes are figured. Now of course, the interest payment is deductible so let's reduce it by the marginal rate of 33% and you get a real cost (in the first five years) of your refi at around $2320 (or $2494 if you are in the 28% marginal bracket). If you keep the loan longer than 5 years the real difference is far more unless you can get better than the 1% taxable savings rate. The way I figure it, I can always do better than the 5.375 rate over the lifetime of the loan even with taxes and inflation so I would have done what you did, opt for the slightly higher rate for no up front money. For someone who has a bunch of money sitting in a MM fund making less than 1% taxable and who will keep the loan for the full term, it makes more sense to pay up front to get the lower rate.