Reply to Is there any reason NOT to refinance?

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Reply to "Is there any reason NOT to refinance?"

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]Because nothing's free. They just roll the closing costs in with the rest of the loan.[/quote]

[b]There is a big difference between rolling the closing costs into the loan and a true no cost refi[/b].  Yes nothing is free, but if the choice is between, say, a 3% mortgage with a $3,000 credit for the borrower towards closing and 2.875% mortgage with $3000 in closing costs paid by the borrower, I think the smart money takes the 3% mortgage.  There is a point--maybe around 10-15 years where the lower rate mortgage would pay off, but most of us either refinance or move within those 10-15 years.[/quote]

No, honey. There's no such thing as a "true no cost refi." Those have higher rates of interest. Even 1/8 of a point over 30 years is going to cost a lot more than just paying some costs upfront. Please don't give advice in this area as you don't know what you're talking about and you could cause someone to make a serious financial error.[/quote]

To be fair, her point is sort-of accurate. If you had to choose between a 3% mortgage with no upfront expenses and only plan on staying in your house for, say, 1 year, that might net out to slightly less than a 2.875% mortgage with a $3000 refi cost attached. For instance, excluding any costs, if you took out a 165K mortgage at 3% and paid it for 1 year, you'd would have spent $5,306.78 and would have a balance due of $161,263.37. That same mortgage at 2.875% would have cost you $5,084.53 and left you with a balance of $161,185.09. If the lower mortgage cost you $3000 to get, then you've spent $8,000 to have balance of $161,185, when you could have spent the $3,000 on principal reduction, and had a balance of $158,263. In this scenario, you are better off taking the higher no-refi-cost rate.

That said, I agree with you - I'd still opt for the lower rate (the spread between no fee and fee based is usually a lot more than 1/8th), so the payback period drops substantially. 
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