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#1
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Question on Refinance payback
Hi -
Have a question for the experts here. One of the brokers here, is offering a cash back if I refinance with them. The deal is basically that I get a higher interest loan and get a certain cash back. Once I stay with them for four months I have the option of refinancing again. The cash back not only covers the extra payment I make due to higher interest rate, but also leaves a good chunk of money in my pocket. Is this legal? |
#2
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"Abbs" writes:
Hi - Have a question for the experts here. One of the brokers here, is offering a cash back if I refinance with them. The deal is basically that I get a higher interest loan and get a certain cash back. Once I stay with them for four months I have the option of refinancing again. The cash back not only covers the extra payment I make due to higher interest rate, but also leaves a good chunk of money in my pocket. Is this legal? Legal or not, it sounds like a bad deal. He's undoubtedly making a better yield spread premium by getting you to agree to the higher interest loan (that's the way rate sheets work). And you can also be nearly certain that the resulting commission from that higher YSP is more $ than he's offering you in cashback. He's selling you on the "refinance in 4 years" thing to make you think he's paying you back for the higher payment. His smoke and mirrors are hoping you don't consider the possibility (and historical likelihood) that in 4 years rates are (historically) likely to be higher such that you won't want refinance, and you'll be sitting on a 30 year loan with an interest rate higher than you might have otherwise. The right way to do this sort of thing is to refinance for more than your current note is (i.e. a "cash out refi") and you can still get the lower interest rate, and pocket the money without a goofy kickback from a charlatan broker. But based on this, I'd shop for someone less slimy in the mortgage biz. Aholes like this are a dime a dozen. -- Todd H. http://www.toddh.net/ |
#3
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Actually, it is 'Refinance after 4 MONTHS' - I am guessing rates would
not fluctuate that much in 4 months, but again who knows. OTH, I was wondering if you have two loans with say 5% and 7% - Would the principal and interest portions of the monthly payment differ other than proportionally? In other words if one loan's monthly payment is say $1500 (1200 Int + 300 Principal) can another loan at higher interest rate be $2000 (1800 Int + 200 Principal)? This way though my payment is only $500 higher, I am also losing on my equity build up by another $100. Pardon my ignorance, but I heard from many that this is a sleezy style of business. If I can get to refinance in 4 months, say for the going current rates and still get a cash back - why is it bad? Is it illegal? I don't want to do anything illegal... Sorry, I did not mean to disrespect your suggestion - but it is a genuine question. |
#4
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"Abbs" writes:
Actually, it is 'Refinance after 4 MONTHS' - I am guessing rates would not fluctuate that much in 4 months, but again who knows. OTH, I was wondering if you have two loans with say 5% and 7% - Would the principal and interest portions of the monthly payment differ other than proportionally? In other words if one loan's monthly payment is say $1500 (1200 Int + 300 Principal) can another loan at higher interest rate be $2000 (1800 Int + 200 Principal)? This way though my payment is only $500 higher, I am also losing on my equity build up by another $100. Have a look at the amortization schedule. http://ray.met.fsu.edu/~bret/amortize.html Okay, let's look at $300615.14, 30year loan. 7% $2000 payment, after 4 mnths you've paid down 994.30 or principal. 5% 1613.77payment after 4 mnths you've paid down 1453.88 of principal. So, the diff is about $460 in terms of principal. Pardon my ignorance, but I heard from many that this is a sleezy style of business. If I can get to refinance in 4 months, say for the going current rates and still get a cash back - why is it bad? It wouldn't be bad in that case necessarily, but you ARE gambling. If you are confident that in 4 months rates aren't going to be higher, then great. No one has that crystal ball, but there's a lot of uncertainty in the markets right now due to current events, rates are still historically very low, and I'm not sure I'd betting thousands of dollars hoping things don't go up. However, the other thing about refinancing is that ... it does cost money. Whether they roll those costs into the new loan (for title work, title insurance, and other sundries) or not, they're real costs and you're paying for them somehow. And by the way, Joe Charlatan is looking forwad to making another yield spread premium commission on that new loan too. Is it illegal? I don't want to do anything illegal... Sorry, I did not mean to disrespect your suggestion - but it is a genuine question. Whether it's legal or not, not be a lawyer or law enforcement professional, I don't konw. I just know as a consumer it's got plenty of red flags in it for other reasons. If this weren't a way for this joker to make more money, I highly doubt he'd be pushing it with you. If you want more cash in your pocket at your original closing, shop around with other mortgage brokers (cus your guy can always manipulate his commissions unbeknownst to you to make it look like "a great deal"), and compare the loan amount and rate and closing costs (don't forget this--brokers often rape folks on these) they'll charge and see what comes out ahead. The loan business is very competitive and it's worth shopping around and pitting these (many of them animals) against each other. Best Regards, -- Todd H. http://www.toddh.net/ |
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