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I recently purchased a new home as a primary residence with a 4.375% 30 year fixed mortgage. I discovered, a little too late in the process, that I could find rates significantly lower elsewhere -- roughly 3.875%.

If I refinance from 4.375% to 3.875% it would lower my monthly payment by about $153 -- totaling $55,000 in savings over the lifetime of the loan. My loan has no pre-payment penalty.

However, I'm wondering whether it would screw over my loan officer if I were to refinance immediately after the closing date. Is it typical for a loan officer to see their commission pulled back if the borrower refinances immediately? I've worked with this loan officer for a number of years -- she's extremely thorough, knowledgeable and an expert on complicated renovation loan procedures. In the past, I've done a couple home purchase/renovations using her expertise on the financing. I don't want to burn any bridges.

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    Why are you worried about the loan officer's feelings and/or commission, when she just cost you $55k in excessive interest? – stannius Nov 21 '17 at 23:58
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    @stannius To be honest, the higher interest rate isn't her fault. It's my fault that I didn't seek out a lower rate elsewhere as thoroughly as I could have. Aside from just trying to be a nice person, it's in my interest to keep our business relationship on good terms. On occasion, I buy houses to renovate them and the financing for homes needing renovation is far more complicated than a traditional home purchase. There's a reason why most home renovators make cash offers. She has specialized in renovation purchases for decades and she's an absolute pro at getting them closed on time. – Elliot B. Nov 22 '17 at 0:59
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    Can you get the better rate through her? Then even if she loses the first commission, she still gets the second one? Second idea--would you consider compensating her yourself? (Effectively increasing your closing costs a little for the new loan--it sounds like you'd still be ahead.) – prl Nov 22 '17 at 4:57
  • @prl My loan officer works directly for a bank, so she's unable to shop around different underwriters to find the best rate. 4.375% was the best they could offer unless I wanted to cough up ~$6000 to lower the rate down to ~4.1% (rough figures, going off memory). – Elliot B. Nov 22 '17 at 7:20
  • Is there a penalty for getting out of your first mortgage? At the beginning like that, it could be pretty steep (I'm in Canada, don't know if it's like that everywhere). – MetalMikester Nov 22 '17 at 14:22
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I would ask her to be certain, but it should not hurt your loan officer. The loan officer gets rewarded for originating the loan. There is no penalty for them if a loan is prepaid that I have ever heard of.

However, you need to look at what the closing costs are for the new loan to know if this is a good idea. Consider how much out-of-pocket you'll need to come up with now (or roll into the new loan), and how long it will take you to break even by paying a smaller monthly payment.

Also, be aware that very rarely will you get the actual rate that is advertised. I recently refinanced as well, and the rate I ended up getting quoted (with excellent credit) was generally a quarter to a half point higher than their promotions. I received several different reasons why, mostly regarding changes in the market (even though the bond market hadn't really changed that much), but sometimes those rates included points which were cleverly hidden in the promotional material.

If you have the funds to refinance now and it saves you significantly, then it's fine to do so. It's a shame that you weren't offered a better loan up front as you may have to pay closing costs again.

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    Upvoted -- I confirmed the 3.875% rate, but also learned that it would include a $1100 buy down fee. Confirmed that in the worst case scenario I'd be looking at about $3161 in total closing costs for the refinance (including the $1100 buy down) which would break even after 20 months. Seems worth it to me, but if I could be overlooking anything please let me know! – Elliot B. Nov 21 '17 at 19:26
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    You might check with your current loan officer and see if you can buy down your current rate. They might do it without any additional closing costs (since they just closed on the loan). It's unlikely in my experience but it it worth asking. If you have to buy down to get a new rate it's probably not worth it (points are generally roughly break-even from a time value of money standpoint). You might be better off prepaying your existing loan by $3k. – D Stanley Nov 21 '17 at 19:33
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    I hadn't thought of the last thing you mentioned there -- prepaying my existing loan by $3,000. Very good idea, so I decided to run the numbers. I found that if I made a one-time extra payment of $3,200 it would save me $8,500 in interest over the lifetime of the loan. However, if I refinanced down to 3.875% then it would save me $55,000 in interest over the lifetime of the loan. To save $55,000 in interest through the use of a one-time extra payment, that payment would need to be ~$22,000. So I suppose the net benefit of using $3,200 to refinance instead of pre-paying would be ~$19,000. – Elliot B. Nov 21 '17 at 19:54
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    How confident are you that you'll live there for 30 years? It might be worth running the numbers for 5/10/20 years if you aren't certain. – Rob P. Nov 22 '17 at 2:47
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    @RobP. Good point -- I probably won't be living there for the entire 30 years, but I'll definitely be hanging on to the house (and the accompanying mortgage) for the next 30. – Elliot B. Nov 22 '17 at 16:53
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This contradicts the other answer so I think it's worth mentioning: I believe different companies have different pay structures and the only way you can know for sure is by asking your loan officer.

A friend of mine purchased a house earlier this year and just last week he told me he wants to refi but is currently waiting because he too doesn't want to burn his loan officer (who is a friend of his). He asked and was told the exact date that he could close without affecting his commission. I think he purchased in May which would put the wait at 6 months, but I will confirm.

Assuming the other answer is correct in some cases, I suspect the disparity could be that the commission structure for mortgage brokers is different from that of banks.

Update: my friend's loan officer does work for a mortgage broker, and in his case the commission is paid 6 months after the loan is sold to the bank, which was approximately 20 days after the mortgage closing date. So in his case he waited 10 days shy of 7 months which fittingly happens to land on Thanksgiving day, as I'm sure his loan officer friend is very thankful for it.

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    Upvoted -- this is good advice. Sounds like the compensation structure definitely varies from organization to organization. In my loan officer's case, she verified that her commission wouldn't be affected. She works for a bank. – Elliot B. Nov 22 '17 at 7:22
  • @ElliotB. - yep, I just confirmed my friend's LO works for a broker. – TTT Nov 22 '17 at 22:34
  • @Xalorous I already accepted an answer back in 2017. – Elliot B. Nov 1 '18 at 17:24
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In most cases working for a lender instead of a bank, the LO pays a penalty if the borrower refinances in less than 6 months after the purchase funded. The lender and the investor/servicer have an agreement that the lender guarantees the loan up until a certain amount of time (i.e. 6 months). This is to hedge the risk an investor takes, as a quick refinance after a purchase would cause them to purchase the loan with no monetary gain.

Some lenders will absorb this penalty, as the LO often has no control over whether or not a borrower refinances or even sells after a purchase, but many companies pass the penalty on. I've seen the penalty be between 1-3% of the loan amount.

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This is an older post, but I wanted to provide a concise answer. If your loan officer deals mainly in renovation loans, she probably has a higher commission structure than that of a loan office that just does conventional refinances all day, as she should, renovation loans as you stated are notoriously difficult, and if she is a pro, she should be compensated adequately. That being said, when a loan officer has a higher commission plan than another, that drives the rate up. If this particular loan was not a renovation loan, then yes you paid a bit of a premium to get it, closing at a 4.375%. Loan officers can and do pay a penalty is a loan is refinanced within 6 months after closing, it's called an EPO penalty ("Early pay off") and every lending institution gets hit with this penalty, it's just whether or not they pass that cost on to the loan officer.

Hopefully that answers your questions.

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