When will a lender pay the upfront costs of refinancing?

Question

I have a 30 year fixed mortgage with an interest rate of 4.875%. I’ve only been paying it 4 months.

Interest rates appear to be dropping, so a family member told me:

Interest rates have been falling a little. You might want to start watching rates at various banks and mortgage brokers. There times when lenders will pay all or part of the up front costs to get new loans. Because they can sell them in the secondary market for a small profit and keep their employees busy. If for example you found a lower rate and could reduce your monthly payment and the up front cost were minimal it might be worth.

Is this true? At what point (how low do rates need to drop) will the lender pay the upfront costs? How can I go about finding a lender that will do this?

Answer 1

Some lenders will do this, some lenders won't. These loans are always available in all different market conditions.

If a lender is doing this they are still making money. They tend to have higher rates becasue they build the fees into the rates. They know the costs of the items that are involved with every transaction, these include filing fees with the government, appraisals and the costs of settlement attorneys.

One other way they make additional money is that if they sell a loan with a higher than average interest rate they earn a bigger fee.

The availability of these no closing cost mortgages doesn't depend on how much rates have dropped, becasue people have all different starting points. Some have had their old mortgage for months, others for years. For some the current rates might be a fraction of a point lower, others will be seeing drops of one or two percent.

You have to decide if the deal is worth it. You still have costs in these deals: you still need to provide all the documents, open the house for the appraisal, and attenbd the closing.