Refinance Mortgage

When you watch the news and it says that rates are 6% for example, what they don’t tell you is there are actually rates from 3.5% to 9.5%.  There is actually a range of rates available and the 6% they mention is normally what they call the par rate.  This is the rate where it doesn’t cost you anything to get and the lender will not pay you anything to take it.

 

As mentioned above, you do have options besides the par rate.  For example if the par rate is 6%, a lender might give you $5,000 to take a rate of 7%.  Along the same lines a lender might charge you $5,000 to take a 5%.   Getting a rate that is higher than the par rate might be useful if you don’t plan on being in the home a very long time.  You might want to use some of the lender credits to pay for other closing costs and the increase in payment due to a slightly higher rate is a non issue.  In the same regard you might want to do the opposite and buy the rate down to 5% because you plan on having the loan for 20 years.

 

Now the reason I explained the above is because if you are considering refinancing, there is 1 foolproof way to determine if you should refinance.  There are other ways to determine if you should refi, but this way is 100% guaranteed.

 

If you are able to take a rate higher than par, so much so that the credit you get back from the bank is enough to pay for your entire refinance, meaning cover 100% of the closing costs, and  still give you a lower payment, then yes it makes sense to refinance. 

 

With this strategy I mean that the loan balance does not increase (due to fees) nor do you pay for any fees with cash.  The rebate from the higher rate covers all costs and all you have into this is the time to fill out an application and gather personal docs.  On average I would say the entire amount of work would be 3 hours.  That includes the time it takes to go to the title company and sign docs.