Have you heard about these buy now refinance free later offers lenders are offering? Do they make sense? Let’s explore what these are and if they make sense for you.
Buy Now Refinance Free Later
Is the refinance later part really free? It depends on how you look at it. If by free you mean no cost to the borrower and the rate and payment goes down, then yes, it is free. Could the borrower receive an even lower rate if they paid their fees, the answer is yes. So, in a sense, it did cost the borrower versus the rate they could have gotten.
Let’s break it down. There are closing costs associated with financing or refinancing a home. There is a possible appraisal, title insurance, doc stamps on the note, and intangible tax on the note. These fees must be paid somehow. The lender can pay them for you, but they typically roll them into the mortgage rate, or what they call the spread.
This cost could equal as much as half percent to three quarter percent in the rate from the lender I asked. Let’s say you have a 7.5% mortgage on your current property. Rates go down to 6.5%. If the cost for a no closing cost refinance is half percent, you could refinance your current rate of 7.5% down to 7% and it wouldn’t cost you anything. You’d be wise to take that deal, wouldn’t you? And if rates went down to 6%, you could do it again and receive a new refinance of 6.5%, and it wouldn’t cost you anything.
You could keep doing this every time rates went down. Perhaps this is why refinance applications are up 7.6% this week over last week. Homeowners are refinancing their existing rates and saving money. For anyone that purchased in the last year or so, this could be an excellent strategy to save money.
Pro Tip Strategy
When rates begin dropping it will create more buyer demand. Right now, buyers have excellent choices in housing, and sellers are more willing to deal or pay concessions this year than last. Once buyers flood back into the market, sellers will be less accommodating.
Wouldn’t it make more sense buying a home today with excellent inventory options rather than fighting more buyers down the road for the best properties? Once you’ve secured your home, you’ve locked in your housing costs. The landlord cannot raise your rent and housing prices won’t go up for you because you’ve already purchased. If the rate goes down, you can refinance it at no cost to you. If rates go up, you’re locked in.
How to Finance
Should you take the offers I’ve heard on the radio that say buy today and we’ll refinance you for free down the road? The lender is either putting building costs into your rate now, in which case you’d be paying a higher rate today, or they’ll add it later. I would not select the added cost now if I were purchasing. Personally, I would wait and just deal with it later. What if rates don’t go down enough, soon enough? You paid extra money upfront for something you may not use. The costs are the same, so why not pay it when you use it? And, as we discussed, are you really paying it if you receive a benefit later and it costs you nothing to lower your payment?
Always Call the Ellis Team
We have lenders we work with that can help you make the best decision. If you want, we can offer advice too. We are not loan officers, but when we hear your story, we can help guide you to the lenders that have good choices for you.
Financially, we don’t see a reason to wait for rates to come down. While you wait for rates to move lower you face increased competition from other buyers. We have a limited window to take advantage before other buyers figure this out. Give us a call at 239-489-4042 and get a jump on the competition, and lock in your housing costs. Once we do that, things can only get better. You won’t be at the mercy of your landlord, interest rates, or other buyers bidding against you.
The Ellis Team has Two Locations to Serve you. Call us first so we can make sure we have someone to help you.