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Old 09-22-2019, 9:03 AM
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huntingsocal huntingsocal is offline
(aka Hogswild)
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Join Date: Dec 2012
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Good question mwr and you are correct, there are many factors

Cost is a factor. The third party costs like title, escrow, appraisal, recording, notary aren’t much different between a $100,000 refi and a $600,000 refi which means loan amount is also a factor

Someone lowering their rate by .25% with a $100,000 loan isn’t going to save nearly as much as someone lowering their rate by .25% on a $600,000 loan so it will take the person with the $100,000 loan much longer to realize the savings compared to the person with the $600,000 loan since they are both paying about the same in actual up front costs

That brings in the factor of how long you plan on staying in the home for

If someone is going to sell their home in a year, it probably doesn’t make sense to refinance, pay points to buy down their rate only to end up selling in a year

Whereas, someone who is in their “forever home” and not going anywhere might be better off buying their rate down so they can “set it and forget it” and just get the lowest rate possible now, knowing they are going to be there for years to come

Now, even if someone is going to sell in the next 12 months a refi might still pencil out. You’ve probably heard ads for “no cost” refis which is actually misleading in my opinion because what they are actually talking about is a refi with no “up front” costs. The lender does credit the borrower to pay for the closing costs but they do with a higher interest rate.

The lower the rate, the more up front costs (discount points) the higher the rate the lower the up front costs (lender credit toward closing costs)

But if someone is only going to be in their house for a year, and we can still lower their rate with a “no up front cost” refi that doesn’t cost anything with a higher rate (still lower than current rate) then it can make sense in a situation like that

So in a situation like that, the rate might only drop .125% but if we’ve got the lender paying all the costs and aren’t adding anything to the loan balance or term then they are saving money from day one and it doesn’t matter that they’re selling the house in a year

I hear people say all the time “Oh my cousins financial guy said never refi unless you can lower your rate by at least .25%” or something along those lines

Truth is there is no magic formula so best thing to do is PM me and I can take s look at your overall situation with long term and short term factors weighed in and help you figure out if a refi makes sense

If it doesn’t make sense now, then we can set a target for where rates need to be for it to make sense and then wait for a Trump tweet to rattle the markets and make rates dip
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