No Closing Cost Refinance
The greatest truth I can possibly tell you it's something already know: There is no free lunch.
Burn that into your mind. No one can work for nothing. You can't afford to go to work and not get paid. Neither can a loan officer, mortgage company or bank possibly yield to make a mortgage loan for absolutely nothing. The loan officer can't feed their kids and the mortgage company or banks can't stay in business. If you can trust that mortgage companies do loans for no profit merely about as much as you can believe car dealers sell their cars "at or beneath factory invoice."
Even if the loan officer and the company were ready to do the loan at a true"no cost", there are other "hard costs" active in the loan. Items like: lender fees, attorneys fees, title search, intangible taxes, recording fee; precisely to name a few, must be paid by somebody.
So how can a Mortgage company offer a No Closing Cost Refinance?
About the only way this can be done is through a concept called"Above Par Pricing." Most consumers have heard of paying" discount points" to buy a rate down. That is, someone (in the old days it was usually a home builder), would pay a discount (a "point" is 1% of the loan amount) to the lender so the buyer/borrower would give a lower rate.
You see, mortgages are priced precisely like bonds. There is a"Par" price and then there is a discount price and an above par price. So, instead of someone paying discount points to buy a rate down, if a mortgage company provides a loan where the rate is above par, the mortgage company obtains a premium. This is normally called a "Yiled Spread Premium."
In a 'No Closing Cost Mortgage', the mortgage company uses the Yield Spread Premium to cover all the costs of the loan and the mortgage companies profit as well.
So, does this mean the mortgage company is betraying or ripping- off the consumer? No, not at all, It all boils down to options.
For instance, on a purchase the borrower has three options:
1. Pay the closing cost out-of- pocket
2. Negotiate for the seller to pay the closing cost.
3. Pay a slightly higher interest rate on the loan and have lower cash out of pocket.
On a refinanced the borrower has three options as well:
1. Pay the closing cost out of pocket;
2. "Roll" the closing cost into the loan. This simply means that the costs are added to the loan so the costs are being financed into the loan amount. This reduces the borrower's equity.
3. Pay slightly higher interest rate on loan and have no cash out of pocket and not invade their equity.
Any of these options can be good or bad depending upon the individual borrower's position. That's why a competent mortgage professional will ask lots of questions before proposing a mortgage loan program and providing an interest rate.My hope with this report has been to educate you and help you avert the pitfalls many home sellers go through. I hope you found the ideas valuable and if there is ever some way I can be of service to you or anyone you care about, please visit my website [http://www.pmfmtg.com]
P.S. Grab your Free Insider Report Six Insider Secrets [http://www.pmfmtg.com/] Mortgage Banks and Lenders Don't want you to learn.
Burn that into your mind. No one can work for nothing. You can't afford to go to work and not get paid. Neither can a loan officer, mortgage company or bank possibly yield to make a mortgage loan for absolutely nothing. The loan officer can't feed their kids and the mortgage company or banks can't stay in business. If you can trust that mortgage companies do loans for no profit merely about as much as you can believe car dealers sell their cars "at or beneath factory invoice."
Even if the loan officer and the company were ready to do the loan at a true"no cost", there are other "hard costs" active in the loan. Items like: lender fees, attorneys fees, title search, intangible taxes, recording fee; precisely to name a few, must be paid by somebody.
So how can a Mortgage company offer a No Closing Cost Refinance?
About the only way this can be done is through a concept called"Above Par Pricing." Most consumers have heard of paying" discount points" to buy a rate down. That is, someone (in the old days it was usually a home builder), would pay a discount (a "point" is 1% of the loan amount) to the lender so the buyer/borrower would give a lower rate.
You see, mortgages are priced precisely like bonds. There is a"Par" price and then there is a discount price and an above par price. So, instead of someone paying discount points to buy a rate down, if a mortgage company provides a loan where the rate is above par, the mortgage company obtains a premium. This is normally called a "Yiled Spread Premium."
In a 'No Closing Cost Mortgage', the mortgage company uses the Yield Spread Premium to cover all the costs of the loan and the mortgage companies profit as well.
So, does this mean the mortgage company is betraying or ripping- off the consumer? No, not at all, It all boils down to options.
For instance, on a purchase the borrower has three options:
1. Pay the closing cost out-of- pocket
2. Negotiate for the seller to pay the closing cost.
3. Pay a slightly higher interest rate on the loan and have lower cash out of pocket.
On a refinanced the borrower has three options as well:
1. Pay the closing cost out of pocket;
2. "Roll" the closing cost into the loan. This simply means that the costs are added to the loan so the costs are being financed into the loan amount. This reduces the borrower's equity.
3. Pay slightly higher interest rate on loan and have no cash out of pocket and not invade their equity.
Any of these options can be good or bad depending upon the individual borrower's position. That's why a competent mortgage professional will ask lots of questions before proposing a mortgage loan program and providing an interest rate.My hope with this report has been to educate you and help you avert the pitfalls many home sellers go through. I hope you found the ideas valuable and if there is ever some way I can be of service to you or anyone you care about, please visit my website [http://www.pmfmtg.com]
P.S. Grab your Free Insider Report Six Insider Secrets [http://www.pmfmtg.com/] Mortgage Banks and Lenders Don't want you to learn.
