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Frequently Asked Questions for No Closing Cost Refinance1. Who is paying the actual cost related to the refinance? 2. Why am I getting a higher rate than my co-worker who
called you the same day?
Since lenders are paying the expense for
your no-closing-cost refinance, they expect to recover the cost in the
next 3 to 4 years through your interest payment. If you have a bigger
loan amount, the lender will give you a lower rate. Vise versa, you will
expect a higher rate if your loan amount is smaller. Also if you get the
loan originally from us, we should be able to refinance you to the same
lender to avoid 0.3% GA intangible tax, resulting in a lower rate. On
the other hand, if your house value has decreased and we have to put you
into
Obama's Refinance Plan to avoid mortgage insurance (PMI), you rate
could be higher. Other factors to affect your rate include your credit
score, your loan-to-appraisal-value ratio (LTV) and if you wish to do
cash-out refinance.
3. Do I have to bring any money to the closing table and
how do I avoid
it?
There
are "pre-paid items" that you may have to bring to the closing
table. They are NOT closing cost and will be fully recovered after
closing. The pre-paid items include (1) 30-day pre-paid interest, and
(2) escrow you need to setup with the new lender. Let's assume
you close in the 20th of the month, you will pay 20-day interest for
the current lender and 10-day interest for the new lender. You will
skip one month payment due the first day of following month to recover the
30-day interest. You will also get refund of the escrow balance from
current lender to recover the new escrow amount. Therefore, all
pre-paid items are fully recovered. Assuming you have enough equity,
you can increase the new loan
amount to cover the pre-paid items and, after closing, send the
recovered balance to the new lender or keep it. That way, you can
avoid bringing money to the closing table. The total amount of the
pre-paid items is your skipped monthly payment plus your current escrow balance.
4. I have paid my
mortgage for 2 years and now I have to re-start for 30 years (or 15
years). How can I compare the saving?
Your
monthly mortgage payment usually consists of four parts: principle,
interest, insurance and tax. Monthly insurance and tax are calculated by
simply dividing your annual insurance and tax by 12. Monthly interest is
calculated by: (current loan balance * interest rate / 12). The rest of
the payment is the principle being used to reduce the loan balance to a
new balance amount for next month.
Therefore, you pay interest to the lender every month based on current loan
balance and interest rate. Since you get a lower rate with refinance,
you pay less interest to the lender every month. There is another way to
look at it. You can choose to pay off the loan in two year less --- in
28 years for 30-term loan or 13 years for 15-year-term --- and then compare
the monthly payment difference. You can use following link to a
calculator
to figure out the monthly saving.
5. Should I refinance now or should I continue to wait for a better rate?
First of all, nobody can predict the financial market. If you choose to pay
the closing cost, you may debate with yourself if rates have dropped to the
bottom. However, if you opt for the no-closing-cost refinance, there is no
point in waiting. You pay nothing for a lower interest rate and you start to
save money the day you close the refinance. Better yet, if the interest rate
drops a week prior to the closing, we might be able to float you down to the lower rate. If the
rate continues to drop after closing, we can refinance you again after four
months. Furthermore, once we refinance you to our preferred lender,
subsequent refinances with the same lender will avoid state taxes which
results in a even better rate. In the past, some home
owners refinanced their home loans with us three or four times in a year.
6. What is the difference between "no-closing-cost" refinance and "no-cost"
refinance?
"No-cost" refinance usually means you do not have to bring cash to the
closing table. It is achieved by getting a higher loan amount to cover the
pre-paid items and closing cost. You may pay closing cost with "no-cost"
refinance. If you do choose to pay closing cost for the
refinance, you should expect a much lower interest rate and you should plan
to stay in the house for more than 3 years to recover the closing cost. We do have home owners who choose this option
and it is actually more popular in the ads you get from mail or on TV. For further questions, please give us a
call.
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