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Looking at refinancing, a salesman is suggesting a double-refinance. The context is that we are looking at a cash-out (to repay a HELOC at a lower rate), and the points are higher for that. The suggestion we have been given is that we should refinance twice (with the requisite waiting period). First to a mid-range rate with a cash-out, then a rate-and-term refinance to get down to the final rate.

As described, the total points paid is a full percent lower than if we did a straight-up rate-and-term refinance. His explanation was that the points are different depending on my current mortgage. To make up numbers, you can pay fewer points refinancing from 5% to 4% and then to 3% than to go from 5% to 3% straight up.

To me, this seems odd, as it suggests that the points I am paying are not based on myself and the current rates, but somehow based on my existing loan. I'm a bit suspicious. He cannot give me concrete numbers because we can't predict future interest rates, but at the same time, I can't make sense of why the rules are what they are. Obviously the salesman has a vested interest in the process as that's twice as many fees/commissions.

Why are the points required to refinance tied to my current loan rate, when that loan will go away once it is refinanced?

Just to add something more concrete. The argument we are being given is that dropping to the lower rate in one jump will cost several thousand dollars in points, but that the same rate can be achieved in two refinances with zero points, and even a little credit.

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If you are talking about the points that you can optionally pay to reduce the interest rate, then in your scenario you would never want to pay optional points. In general these points take multiple years to break even and you are tying to keep this loan for only a few months or as most a year. So unless you get stuck with the loan and can't do the 2nd refinance these optional pints would be a waste.

There are also points such as the loan origination fee. At my credit union this fee is 0.5%

Now sometimes the lender will roll the closing costs into the mortgage. This will either increase the amount of the loan, or increase the interest rate. Those costs could be expressed as points, or $'s.

I would not move forward with this two stage plan until all the numbers could be confirmed. You might look at another lender or mortgage broker and ask them to describe how they would approach the same scenario.

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  • I added an addendum to make things a bit clearer. The claim is that refinancing to the lower interest rate in one step results in more total points than refinancing to the same rate in two steps, by several thousand dollars. The only explanation I have been given is that my current interest rate factors into the number of points needed on the new loan. – Cort Ammon Aug 2 at 15:28
  • +1 for looking at another lender. If the lender can't explain it in a way that makes sense, either they don't know what they're doing or they're intentionally trying to confuse the issue. Maybe they get more fee's/commission if you do it in two steps? – Hart CO Aug 2 at 15:37

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