If you’re thinking about mortgage refinancing you might be considering paying extra points to buy down your interest rate. Is this a good idea to get the lowest monthly payment or are there better uses for your cash? Some homeowners fall for no cost refinance offers that result in overpaying thousands of dollars unnecessarily. Here are several tips before you refi to make sure you don’t overpay the origination fee or points when mortgage refinancing.
In reality, there’s no such thing as a “no cost” mortgage. Like a unicorn, it’s a rumor. Borrowers always pay. With so-called no cost financing the lender pays some or all closing expenses in return for a a higher rate. Given your credit standing and the premium interest rate, the lender can sell the note on the secondary market for additional money, thus getting back the closing costs plus (hopefully) a profit.
This is a great article explaining how lenders confuse the issue of paying mortgage points with slick no-cost marketing. Ultimately, the decision to pay discount points on your mortgage refi can be based solely on how long it’s going to take to recoup this expense with your lower payment amount. You have to recoup all the points include the mortgage loan origination fee before you gain any benefit from the lower payment amount; if this isn’t possible or you can’t justify the amount of time it will take then don’t let the lender talk you into paying points.
You can learn more about mortgage refinancing without paying unnecessary fees or markup by checking out my free Underground Mortgage Refinancing Videos.