"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/