Home Mortgage Refinance - What's the catch?

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trudeo
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Joined: Wed Apr 30, 2014 9:43 am

Home Mortgage Refinance - What's the catch?

Post by trudeo »

I purchased my first house in early 2015. At that time, I got a 30-year fixed mortgage at 3.625%. I now have ~25-year left on that mortgage and I will most likely stay in the house for at least 5+ years if not longer. I started looking into mortgage refinance and I wonder what is the catch.

I am looking at Better.com and they are offering me a 20-year fixed at 2.625% (I would like to pay off the house faster) and I would get a credit of ~$1000. This sounds too good to be true. They are giving me a credit for refinancing with them? How can this be possible?

In summary, refinancing from 30-year fixed at 3.625% to a 20-year fixed at 2.625% would result in:
  • Almost same monthly payment ($100) and the house is paid 5-year earlier.
  • ~$110,000 in saved interest over the next 20-year.
  • No fees.
What am I missing? Again, it sounds too good to be true. Is there any hidden fee? Thank you.
Goal33
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Re: Home Mortgage Refinance - What's the catch?

Post by Goal33 »

There’s no catch aside from the economy having to tank to get here.
CatHerder
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Re: Home Mortgage Refinance - What's the catch?

Post by CatHerder »

I'm in almost the exact same situation, bought in late 2015 at 3.75% with a 30-year fixed. Thinking of refinancing to a 20-year mortgage to shave 5 years off the total duration of the loan, for about the same monthly payment.

Also considered going to a 15-year for even more savings, but not sure I want to commit to paying the extra $600/month. I can afford it as of today, but I tend to be pretty conservative about potential job loss and other risks.
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anon_investor
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Re: Home Mortgage Refinance - What's the catch?

Post by anon_investor »

trudeo wrote: Wed Oct 07, 2020 10:09 am I purchased my first house in early 2015. At that time, I got a 30-year fixed mortgage at 3.625%. I now have ~25-year left on that mortgage and I will most likely stay in the house for at least 5+ years if not longer. I started looking into mortgage refinance and I wonder what is the catch.

I am looking at Better.com and they are offering me a 20-year fixed at 2.625% (I would like to pay off the house faster) and I would get a credit of ~$1000. This sounds too good to be true. They are giving me a credit for refinancing with them? How can this be possible?

In summary, refinancing from 30-year fixed at 3.625% to a 20-year fixed at 2.625% would result in:
  • Almost same monthly payment ($100) and the house is paid 5-year earlier.
  • ~$110,000 in saved interest over the next 20-year.
  • No fees.
What am I missing? Again, it sounds too good to be true. Is there any hidden fee? Thank you.
Is the $1,000 credit net of costs (excluding prepaids/escrow)? If not, then you should keep looking for a better deal. Check out the refinance mega thread:
viewtopic.php?p=5534343#p5534343
dsmil
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Re: Home Mortgage Refinance - What's the catch?

Post by dsmil »

There's no catch (I bought in 2019 and have refinanced twice) but definitely shop around and get competing quotes. Better.com usually doesn't give the best rate up front but will then match competitors.

The problem that some people run into with refinancing is that they don't recoup the costs because they either move or refinance again. The way to counteract this is to take a rate that is slightly higher in order to receive lender credits which offset your costs. That way, it's really a no-lose situation. You'll have lender costs (or credits), appraisal costs, title costs, taxes/fees. So if appraisal, title, taxes/fees comes to $3k in costs, you could see what rate a lender would give in order to receive somewhere around $3k in lender credits. Generally the lenders should be able to provide you with a rate table which shows you the lender costs or credits based on the rate. You don't have to do that but if you are looking to really have no risk, that's an option.
tommy85
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Re: Home Mortgage Refinance - What's the catch?

Post by tommy85 »

trudeo wrote: Wed Oct 07, 2020 10:09 am I purchased my first house in early 2015. At that time, I got a 30-year fixed mortgage at 3.625%. I now have ~25-year left on that mortgage and I will most likely stay in the house for at least 5+ years if not longer. I started looking into mortgage refinance and I wonder what is the catch.

I am looking at Better.com and they are offering me a 20-year fixed at 2.625% (I would like to pay off the house faster) and I would get a credit of ~$1000. This sounds too good to be true. They are giving me a credit for refinancing with them? How can this be possible?

In summary, refinancing from 30-year fixed at 3.625% to a 20-year fixed at 2.625% would result in:
  • Almost same monthly payment ($100) and the house is paid 5-year earlier.
  • ~$110,000 in saved interest over the next 20-year.
  • No fees.
What am I missing? Again, it sounds too good to be true. Is there any hidden fee? Thank you.

There is no catch and there is no free lunch either. They can offer a lower rate because the interest rate has dropped. They are giving you a credit for higher interest rate. You are just paying that back over time. I am sure you would get a lower rate if you ask for no credit and pay all the closing cost but that would take you longer to break even like already mentioned here. If you are planning to move or sell soon, no closing cost would be an option. You dont get any extra credit than to cover the closing cost and your interest rate may be slightly lower than what they are offering now.

Hope that makes sense.
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Watty
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Re: Home Mortgage Refinance - What's the catch?

Post by Watty »

trudeo wrote: Wed Oct 07, 2020 10:09 am I am looking at Better.com and they are offering me a 20-year fixed at 2.625% (I would like to pay off the house faster) and I would get a credit of ~$1000. This sounds too good to be true. They are giving me a credit for refinancing with them? How can this be possible?
The way that it is possible is that as soon as the new mortgage is all set up then the loan company will resell the mortgage for more than it cost them and they will make a profit on that.

I am just making up numbers but if you did paid all the costs yourself like for the appraisals, title insurance etc then you might be able to something like a 2.25% mortgage.

When they go to resell your new 2.625% mortgage they will be able to sell it for more than they could sell a 2.25% mortgage.
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vitaflo
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Re: Home Mortgage Refinance - What's the catch?

Post by vitaflo »

trudeo wrote: Wed Oct 07, 2020 10:09 am I am looking at Better.com and they are offering me a 20-year fixed at 2.625% (I would like to pay off the house faster) and I would get a credit of ~$1000. This sounds too good to be true. They are giving me a credit for refinancing with them? How can this be possible?
Why would someone sell a product cheaper than a competitor? Because they want to make a sale and are still making money on it even at the reduced price. It's really no different.
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JoeRetire
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Re: Home Mortgage Refinance - What's the catch?

Post by JoeRetire »

trudeo wrote: Wed Oct 07, 2020 10:09 am What am I missing?
Closing costs outside of the "no fees"?
Is there any hidden fee?
If it's hidden, nobody here could know.

If you only stay in your home for 5 years, are you saving anything?
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
Topic Author
trudeo
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Re: Home Mortgage Refinance - What's the catch?

Post by trudeo »

JoeRetire wrote: Wed Oct 07, 2020 12:09 pm If you only stay in your home for 5 years, are you saving anything?
I am expecting that I will have paid more of the principal when I sell the house. Isn’t it the case?
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JoeRetire
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Re: Home Mortgage Refinance - What's the catch?

Post by JoeRetire »

trudeo wrote: Wed Oct 07, 2020 1:05 pm
JoeRetire wrote: Wed Oct 07, 2020 12:09 pm If you only stay in your home for 5 years, are you saving anything?
I am expecting that I will have paid more of the principal when I sell the house. Isn’t it the case?
Not much.
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
John Doe 123
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Re: Home Mortgage Refinance - What's the catch?

Post by John Doe 123 »

JoeRetire wrote: Wed Oct 07, 2020 6:24 pm
trudeo wrote: Wed Oct 07, 2020 1:05 pm
JoeRetire wrote: Wed Oct 07, 2020 12:09 pm If you only stay in your home for 5 years, are you saving anything?
I am expecting that I will have paid more of the principal when I sell the house. Isn’t it the case?
Not much.
Based on the numbers that he provided, it seems his mortgage balance is roughly $425k.

He'd be knocking the interest rate down 1%.

Over the course of 5 years, he would be saving around $12,000 in interest based on my rough calculations.

That's "not much" to you? For what seems to be either a no-cost refinance or a refinance with a net credit from the lender?
John Doe 123
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Re: Home Mortgage Refinance - What's the catch?

Post by John Doe 123 »

To answer your question OP - refinancing is a no brainer for you. Ask the lender what the total out of pocket cost for you would be and confirm that it is a net credit. If there are out of pocket costs for you, ask them about a "no cost" refinance. I've refinanced 4 or 5 times over the course of the last 2 years. It takes a few hours of my time to collect/review/sign documents, but that's really the only down side.

Unless saving $12,000 is not worth a few hours of your time. Then go have one of JoeRetire's servants make you a pina colada or two.
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