I can't figure out why banks would actively try to get their customers to refinance their mortgage at a lower interest rate. And to be absolutely clear, I am talking about a bank refinancing a loan at their own bank (Wells Fargo refinancing a loan from Wells Fargo). What are their incentives?
I can think of only two:
- They make some money from the closing costs
- It resets the amortization schedule so you are paying a higher percentage of your payment as interest
But the difference isn't much when you may have only had the previous loan for a few years. And what's really confusing is that banks in the US right now are offering refinancing with no closing costs.
I would love to take advantage of one of these no-cost closing refinances but I'm afraid that I must be missing something big if the banks are trying to save me money. The crazy thing is that I can refinance my 30 year (of which I have 27 years to go) into a 20 year at a lower interest rate and pay almost the same amount per month. What am I missing?
This is a 30 year $402k fixed at 4.875% with 27 years left refinanced to 20 year fixed at 4.125%. Monthly payment goes from $2,206.80 to $2,474.74. How is this a good deal for Wells Fargo?