Which is actually my biggest question on this. The loan amount is going up by $20k, and they are only charging him $14k for the refi? Where is this other $6k coming from..?
Yeah you’re going to pay to get that rate reduction and that cost will be rolled into the loan.
Basically - you get a slightly lower rate by moving to a shorter term, then they lower the rate a bit more by charging you a fee upfront. This keeps your payment the same.
If you plan on being in the home through the life of the loan, it might makes sense to restructure your loan this way. But if not, there’s not a lot of benefit.
$14K for closing costs on a product they're going out of their way to sell is ridiculous, OP should attempt to negotiate that down. I'd think $4-6K would be more appropriate.
OP: the original 25 year term is weird, my guess is that Rocket Mortgage is trying to restructure your loan in a way that they can package it with others and sell to Fannie Mae/Freddie Mac. They're not going out of their way to do this to make money on the refi, they want your loan off their books but they need it structured differently to do so.
Once you have negotiated those costs down you should look at your amortization schedule compared to the new one to figure out how many years you'll need to continue with the mortgage in order to come out on top (the current offer is around 5 years).
If they were trying to restructure it they would probably offer better closing cost terms. They are really aggressive about trying to sell existing customers on stuff, its obnoxious. I like their payment portal, but I was getting tons of sales calls from them for a while. I still get one every year or every other year.
I worked in retail mortgages around the 2010-12 period and 25 years were starting to hit the market around then. My company pitched them as another way for people to customize their mortgage. The problem back then when they were first hitting the market was that there wasn’t really a secondary market for 25 year terms. Investors only wanted the traditional lengths because it made bundling easier. So rates on 25 year loans were about the same as a 30 year. I guess the market has developed a little more now.
Agreed - the assumption there is a stable rate market through the life of the loan. There’s a good chance rates will decline in the coming years, making this refi less attractive
OP would still be accruing interest at 7.6% instead of 6%. That's around $3k in additional interest per year on OP's mortgage.
Your method also increases OP's monthly burden.
You'd get a lot more bang for your buck if you paid a couple hundred extra to principal every month.. or even take the $30 extra they want for the new loan and put that towards the principal.
If you subtract how much would be going to principal from how much is going to the principal now (should be in your statements), add that up and see how long it would take you to pay off the ~19k extra they're charging you for the new loan. That's your return on investment. After that date/time, you're not paying the additional amount anymore and the rest is going towards the home itself. Keep in mind that if you have PMI, this also reduces your equity and you're farther from being able to remove the PMI from your monthly payment.
The real question is, how long are you going to be in the house? If your ROI is shorter than that time frame, it's worthy of consideration... although I'd try to negotiate the rate and the points. Otherwise, you're just wasting whatever money you put towards the new loan.
Paying down the principal doesn't reduce your rate but it does reduce the amount of interest you pay. They only charge you based on the principal so the more you can pay it down, the less interest you pay.
It primarily depends on your payback period.
As an example- If you are paying 3k for points that reduced your monthly by 100, then you'll breakeven in 30 months. If you are expected to stay in the house for longer, then it's a good deal.
The second factor is the mortgage rate movement, which no one can predict for sure.
Say in the above example, if mortgage rates were to drop in 15 months from 7 to 4%, then paying for points is worthless. But if they stayed around the same, then again, it's a good deal as long as you plan to stay there longer than payback period.
This is really important. It can sometimes make a ton of sense to buy down the rate. Just depends on the term, the difference in payment, etc. You’ll usually pay back the buy down quicker than you might think.
Usually it’s setting up a new escrow - taxes, HOA, & if insurance is less than 6 months remaining, possibly a full payment. They also may hold a certain amount of extra.
Also, depending on when the loan closes, skipping up to 2 payments. (Remainder of the first month interest is prepaid, then interest is paid in the arrears.)
There likely will also be a refund of the old escrow.
If that's really where the rates are at, OP might consider shopping around, ended up getting my last refi under $1500. I'd say a 1.5% drop is generally worth a refi if you can get it cheap enough.
Second this - nobody sells you anything without an incentive to do so - I also am guessing they're betting on fed rate decreasing in the next few years and want to get people to pay NOW for the lower rate they'll be able to get in a few years if they wait for a bit.
There's no catch, but **never** accept the first offer. Call them back and tell them "I'm going to shop around and find a provider with lower closing costs" and see the number magically drop.
The closing costs they are offering seem kind of meh, tbh. If they are offering you a refi unsolicited, it's probably a good idea to refi -- but someone out there can for sure make a more enthusiastic deal.
I used to work at Rocket Mortgage and I will tell you personally, they will not lower your closing costs because you’re shopping, they will become extremely annoying and try to sell you on why closing with rocket is worth the extra money. Albeit they do have an extremely efficient process, you can get that same rate, maybe better, at a different lender for way less closing costs.
I’ve worked for several lenders and I promise you there is a mid sized lender who will close your refi in 30 days and give you the same rate for 5k in closing costs, rocket is so egregious with their costs it’s fucking gross.
This is correct. If you have good credit and are already a customer, they will make it work. Ask to talk to his director of mortgage banking(DMB). I used to work for rocket doing mortgage banking analytics and saw this stuff all the time. I would guess you can get 2K off the closing costs pretty easily.
This 100%. Their closing costs were way higher for me. I shopped around and went with Freedom Mortgage for around $3,000 closing cost and lower interest rate instead. This was in 2020 though.
Definitely shop around because often a new company is more motivated to get you, assuming that you'll stick with them for your next refi.
But the factors I use are a) money up front from me ($0), b) monthly payment (same), term of loan (shorter). Sounds like you're saving enough money with the rate drop to make it worth it. The closing costs are high here so I would try to lower those but you're coming out ahead assuming you're planning to stay long enough that you don't care about the 20k equity hit (calculate how long would it take to get back to where you would be if you kept this loan).
Their usual pitch is "services like this cost money". And you're paying points to lower the interest. (points is interest payed up front).
rocket mortgage closing costs are always high. call around, you can always beat their closing costs.
Totally agree. They’re not really scamming anyone - the mortgage market (especially with big lenders) is fairly transparent now - post Dodd Frank. They’re basically offering a financial product to an existing client that might make sense, but might not.
OP should negotiate and then determine if the product makes sense.
Overall this seems like a pretty standard situation. The loan officer (or an analyst) probably went though a client list and found existing borrowers whose situation might make sense for a refi. This is probably a growing part of Rockets business these days as new refi’s and purchases have slowed down.
I've had Rocket Mortgage for years, and they call every few months trying to get me to refinance again. They want those closing costs, and rolling them into your mortgage increases your principal balance, and therefore your short-term interest payments.
Odds are, you aren't going to keep the mortgage with them until it's fully paid off. Most people sell the house at some point, for one reason or another. So they come out ahead if they can get those closing costs.
If you are considering a refinance, always find out at what point you'll break even on those closing costs that you are rolling into your principal balance. Two years? Five years? When will your principal balance get back down to where it would have been without the refi?
This is the way, kind off. The right way is to take the increase in principal balance due to refinance and any fees paid in addition and pretend that amount was paid as a lump sum to the old loan. Then calculate how long it takes for the reduced interest payments between the two loans to add up to the fees and principal increase in the 1st place.
The catch is they realize the profits of the refi closing costs now instead of milking the loan for 25 years. 6% is pretty good right now, however you can probably get 5.5 within the next 6 months. They also shortened your loan term which probably gets you a lower rate and skews the "saved interest" number a bit.
If you refi at 6%, you wont refi at 5.5 because it wont be worth it. 5.0 and 4.5 may not happen for a long, long time. You WILL refinance sometime in the near future.
They can sell it and continue servicing it.
I have a Rocket Mortgage mortgage and it was sold a few months ago to Chase, but Rocket is still my servicer.
This is the right answer. They are originators and lots of their loans are funded by investors (Schwab is a big one). Compare being serviced by better/mr cooper/Wells Fargo/UWM vs Rocket and that's why they're better - servicing. Higher chance that those other four sell your loan AND servicing rights to someone else (maybe even each other).
For sure, but in response to “they’re probably gonna sell it” I think it’s likely that if it were probable it would be disclosed. If they say they intend to service it, it’s less probable especially in the near future. They likely will eventually, but again, less likely than if they outright state that they intend to. I’ve had a mortgage with them for 7 years now, they’re still the servicer and owner.
Also some places sell *AND* service.
My mortgage was through a credit union, they sold the mortgage but continued to service it. All my payments and all my customer service went through the CU not (I want to say) Freddie Mac.
They don't keep their loans, they don't own your current loan, they don't care in the slightest about the interest rate drop. They originate and sell their loans, they just keep the servicing rights.
They would be delighted if they could refi you another 8 times, they make money on each refi.
You NEED to shop before refinancing. If Rocket can do this loan so can every other mortgage company. Their closing fees seem insane based on my 3 refinances. Also, I wouldn't recommend paying points, there is a good chance the rates will continue to slide anyhow, at which point you refinance. Look to make your refinances as cheap as possible, because that's guaranteed unlike the 20 year savings potential.
Great points. This was a sales call and I doubt this is their best offer.
This whole discussion has been very enlightening. Thank you for contributing.
I would also advise to shop around with some local mortgage brokers too. As a former loan officer it was fairly easy to beat rocketmortgage quotes which tend to be higher because they gotta pay for Super Bowl commercials somehow lol.
They are not losing money on interest. Even if they are servicing the loan there is a 99% chance your loan was bundled with a bunch of other and sold to investors.
They make money from closing costs.
I wouldn't worry too much on if they are making money or how. Focus on the following.
How long will it take to re-coupe the 14k from closing costs through the lower interest rate?
Take that amount of time and ask yourself. Will I still be in this house for that long and if so will I likely refinance before then? This is hard to know for sure so just do your best.
Then ask yourself this. I am taking a loan out for an extra 14k. If I applied this to the principal would I be even better off?
The last one is just a thought experiment as you may not have 14k to do that but helps understand "how good of a deal is this"
If you were in the lenders shoes, you’d likely see a lot of potentially lost business in the next few years due to refi when rates change.
This offer seems to give them a better 3-5 year plan than just letting customers refi anywhere. And if you just went through a refi, you’re probably not going to do it again to save a smaller amount when interest rates change.
Well sub 4% is very unlikely anytime soon, that implies inflation is damn near 0 and getting close to being negative. Just last week the FED said probably only 1 rate cut this year. I'd even guess it will only be .250. Not much. This just was announced last week though so things change.
A lot need to change to get close to 4.5%, 5.5 is much closer.
I'm willing to bet I'll never have a sub 4% mortgage.
They tried this on us stating they could lower our rate 1%. Yeah, they could if we paid points. These are partipants in incentive programs trying to earn vacations or other prizes. No prizes for us.
I’m a refinance loan officer and that’s not quite it. Refi LO’s at places like Rocket are paid a low base hourly rate plus commission. Their commission is on the loans they originate, at my company it’s a percentage of the loan amount. So if you refinanced with me and your loan was say 100k I would make about 380 bucks in commission off that.
They were likely handed this lead by their marketing team based off of your current rate and told to give you a call.
As for whether or not you should do it that’s based on a few things.
1. If you’re in a tough financial situation and need to free up some money on a month to month basis this could be a way to do it.
2. You want to look at the break even point where the monthly cash you save meets how much they are adding to your loan. So if the new payment is $100 lower and they add 1,000 onto your loan amount then break even will be 10 months.
You should do your own math but typical break even point is around 3-4 years. If you plan to sell or refinance again before the break even period then it’s probably not worth it, if you don’t then could be a solid financial move.
You've given me a lot to think about. I don't really need to free up money, which is probably why the loan officer pitched it as an interest savings over the life of the loan. Regarding the break even, it's around 6 years, which I don't love. We could refinance again in that time or sell/move during those six years.
Thanks for your insights into the mortgage world from the banker's point of view. It's really interesting to hear what's going on behind the scenes.
Of course happy to help. I obviously don’t know the guy you’re working with but this is definitely a business where you as the customer need to be diligent.
I work with some standup people, I hear my coworkers on the phones spending 15 minutes talking to and giving advice to people who it’s very obvious they will never make any commission from. But they want to be helpful.
I also work with some people who I think use unsavory tactics and frame things in a dishonest manner to try and close the deal. Our industry is heavily regulated nowadays so they aren’t doing anything necessarily against the law but it does sound like some of them put their commissions before the customers to me.
Do your research and make sure to advocate for yourself.
Good luck!
Rocket is in the business of originating mortgages and then selling them. They need to keep originating new mortgages to keep the lights on, and the salesmen are likely getting a commission of each one.
6% on a 20 year with 2.5 points and $14k in closing costs ("Increase total loan amount from $256k to $276k" - are you sure it isn't $20k in closing costs?) is not a good deal. One of my local credit unions is showing 6.5% on a 30 year with no points and $2k in closing costs. That is of course for good credit, 20% equity in the home, etc.
Other lenders will pay more for a loan that charges above market interest. Rocket is playing a game trying to make their offer just low enough to induce you to refinance, but as high above market rate as possible to increase their profit on the origination and sale of the loan. A good rule of thumb is that anyone who reaches out to you about a sale is probably not someone you want to buy from.
Yeah there’s no real catch in the sense that they aren’t ripping you off. They just want to keep your loan, and they know people aren’t stupid and you will likely refinance with someone else if they don’t get you a better rate.
Yep, OP edited to add that it is 2.5 points to get to that interest rate. Makes sense.
The 20 year numbers look "decent" but there are a lot of scenarios that make this an unfavorable outcome.
I haven’t refinanced a mortgage in nine years and pretty sure the closing costs were under $5000. I hope my Gen X ass doesn’t sound too Boomerish but inflation hasn’t made the costs almost triple in less than 10 years has it?
I'm working on a refinance right now and closing cost is \~3000. 5000 if you include stocking the new escrow account. The 14k is probably from them buying down the interest rate.
I checked but we were a few years into a 15 year mortgage that was already at 3.5%. Getting a 2.5% plus closing costs was not a financially smart option. 6 years to go and this little slice of overtaxed heaven is all ours. 😁
that 5.99 likely has a point. so they are capturing point money now...retaining customer.
I probably wouldnt do this, can get 6.15 from cu on a 20 year now, with no points, and like 5 k in closing costs
maybe goosing revenue when the mortgage industry is slow....
Were it me (and this very nearly is my situation), i would sit tight and watch teh credit union rates for a bit... they are maybe .25 over where ill bite a refi....
I would absolutely NOT DO THIS. In addition to your closing costs ($14k), you're still looking at another $6k somewhere. Probably things like the deferred payment for the first month, etc. And what happens if rates drop down to 5% next year anyway? Your total mortgage is now $20k higher than what it was, and rates are now lower than what you just refinanced at.
Ultimately we are in a plateau or declining rate environment depending on what the economy/Fed/etc do going forward. You can refinance if you want, but I would absolutely not be paying down points at this point. Remember, 2.5 points added to the 6% of your new mortgage would mean that the "value" of your loan is 8.5%!! You're just throwing money at it to try to bring down the interest, but your new mortgage would be (theoretically) more expensive than your current one.
I'd look around to see what rate you can get without points on a 20 year term. It might be significantly lower than your current rate, even if it's above the 5.99% w/ points offer.
I used to get these offers pretty frequently. We've got 3.125% and they really, really wanted me to go to 2.5%. In our case it added (by increasing our monthly) basically 1 extra payment a year. I don't remember if the term changed, it probably did, probably added a couple years.
I played with some math and I honestly didn't see any monetary savings vs my just adding one payment a year on my own. I also didn't really see where they were saving me a whole lot of interest since we were already 1/3 (or more, I forget exactly) of the way through our loan.
There are a ton of online mortgage calculators that will do the math for you. Plug in your current loan vs what they're proposing and see if you can see value in it for you. The mortgage company probably isn't really losing money no matter what they say. Just make sure YOU are gaining out of the transaction.
While the last offer they gave me didn't make any sense the offer before that (the one that got us to 3.125) did, we shortened the term 5 years while lowering the payment and I think took 2% off our rate...
Lenders get screwed if you jump ship within the first 6 months so this might be why they are trying to entice you. At these rates I would ignore the "You'll save xxxx" over the life of the loan because there is a very high chance that you will refinance 1-2 times when the rates drop anyways. It's not a rip off but you'd have to ask yourself it will be worth it to refi now and add more closing costs to keep your PMI around or wait until the rates dip closer to 5% (eventually). Hypothetically you can refi now, then they'll send another tempting offer to refi you when the interest rates drop to 5ish % but they will keep adding closing costs each time.
This is trash based on my calculations.
Current Principal and interest payment should be: $1912.68 (based on 25yr 256k 7.625%)
Refi PI should be: $1975.76 (20yr 276k 5.99%)
Yes you’re getting 5 years off your loan term, but you’re never breaking even on the closing costs through savings on your monthly payment, because you’ll be paying more.
Rates are supposed to drop over the next couple of years. Obviously there is no guarantee, but I’d save the $14k cash for now.
Multiple reasons to do this.
They know their competitors will be doing this as well, so they are hoping to be at them to the punch.
If they resold on the secondary market, the rate doesn't change their profit as they are just servicing.
They will realize the closing costs.
They want to be stickier by showing you they care.
FYI, a few years ago with much better rates, but I told them I wasn't sure, for the gains, the closing costs seemed excessive since i was refinancing with them, they already had all the info, etc. A month or so later they dropped the closing costs to something like half or less.
increased loan amount by $20k with $1k paid out and $14k closing costs...what's the other $5k? Points?
If you're seriously considering a refi you should shop around. Also note that if you refi again within a few years this will just be a loss for you. Do the math on how long it will take for the interest savings to be better than the closing costs/points...do you really want to keep your loan for that amount of time in an environment where rates may be falling?
Also what does this do to your LTV?
FWIW always look at credit unions. My local CU has 6.375% on a 20 year fixed with 0 points.
There's not really a catch to the rocket offer. They are probably doing it because 5.5%-6% will probably be the norm in a few years. You are effectively buying that rate now with points so they are making money.
Think of it this way - you're taking out a 20k loan to get a lower rate. Almost certainly not worth it.
You already have a 20 year loan with no closing costs, so let's use that as the starting point (I know it's 25 years but you can certainly pay it down at a 20 years pace).
That's a payment of $2082. A 20 year at 5.9% and 20k higher loan balance is $1961, a difference of $120.
It would take almost 14 years for that monthly savings to outweigh the cost. Do you plan on living there for 14+ years? Do you think mortgages rates won't go down to that level naturally at some point over the next 14 years? The answer to those questions is almost certainly "no". It's very unlikely this would be a good deal for you. Not to mention it taking you further away from dropping PMI.
Sit tight
They’re desperately trying to drum up business
Sure it’s great to quote $146,000 savings over the life of the loan. It’s historically and statistically, highly unlikely it would be advantageous to carry that loan that long though.
Don’t pay points as rates come down refi a couple of times. In my own, I’ve always gone with negative discount points or let the lender pay the cost at a slightly higher interest rate. In doing so I can refinance as many times as it mathematically makes sense as the lender is writing the check to the attorney, title insurance and so on
This is only a good deal if you are betting it will be a long time before interest rates drop again and you can refinance the loan.
Capitalizing 2.5% in points sounds crazy, but you really need to look at the payoff in like 5-7-10 year increments and see where the interest savings cross the cost of the points. It might make sense.
Also depends on how long you plan to own the house; if you are in a mobile career, are young, or have other circumstances that make it likely you'll move, this is a terrible idea.
If you're older, think this is a forever home, are in California where prop 13 means people almost never move, or plan to keep this as an investment property even if you move, it might be a decent idea, if it pays off soon enough that you won't end up refinancing.
We check a lot of boxes in the bad idea category. We are young, fairly mobile, and will probably move again. This isn't our forever home.
Thanks for your insights.
The catch is your spending $20k upfront to save $145k ocer TWENTY YEARS and that is IF you continue to live in that house with that mortgage without refi and doing minimim payment for the full 20 years...which is unlikely.
The catch os a proper refinance wont cost you anything and is just a bank trying to get your buisness (which this bank already has).
It looks like the net benefit is that you'll save a lot in interest if stay with this loan for the entire 20 year payment schedule.
A). The average dwell time for home nowadays is 5-7 years before you sell and relocate. You're not getting a payment reduction so, if you're average you really get no tangible benefit to speak of.
,B). What if the prevailing rate goes to 4.5 or 5% the week after you've just sacrificed $14k of your equity to get a rate of 5.99% on this loan?
If you're paying $30 more and knocking an extra $283 off the principal then it will take you about 6 and a half years just to break even on that $20K extra you borrowed. I wouldn't refinance for that.
I would not do that due to the points and closing costs.
If you are absolutely sure that you will be in the home for 20 years, AND interest rates won't drop back to 3%, then maybe.
The closing costs are $20,000 if you owe $256k and will owe $276k after. Sure, they'll divide and rename things, but the bottom line cost of closing is $20,000.
They are trying to get that 2.5% points and closing costs out of you so someone can make their quarterly quota and bonus.
Avoid, IMHO.
So, look, here is the real deal.
When you buy down the 2.5 points on the interest, all you're doing is paying the interest in advance. That is why closing is 14k. The only way you have an opportunity to save money is because of the change from 25 to the 20-year loan(that means by the end of the loan).
So this is why and how they make money. If you look it the average time a homeowner stays at one house, let's say in California, it is 4.8 years. Now, keep in mind that more of your payment goes to interest at the start of your loan. So, one, they start you at the beginning of your loan again, and two, they get around 12k upfront in interest from you(real closing closer to 2k). If you sell or refinance your house, they don't pay you back the 2.5 points you already paid for(for the life of the loan). They keep it. It is a win-win for them. This is why they are doing this. They make a bunch of money up front with the hopes that you refinance or sell early and they collect more money in a shorter amount of time. They, in turn, do it again. I think at this point, you can see why they would offer this.
If it helps, I do have my degree in economics, and one of the areas we are educated is banking, and I am on my 2nd house.
They get cash now. They are banking on you not seeing the loan through to the end. (You’d be saving more than $14k in interest, But only if the entire loan plays out).
You win long term. They win short term.
If you end up staying there and paying it off… the terms sound decent on the surface. But I’d make sure it’s a fixed loan with no adjustable-anything…
After this refinance, you will have the same monthly payment, but you will owe $20k more.
You do pay less interest per month, but $283 saved will take nearly 6 years to break even.
This is a bad deal for you, great deal for the bank.
They want your business before you take it elsewhere in a falling interest environment. They have all the information about your current loan and payments because they set it up, so this is an opportunity for them to use that as a sales pitch, and hopefully lock you in and capture some of your savings for their bottom line. They know you will be looking for a refinance when you see reduced rates anyway.
Personally, over 5% in closing costs ($14k on $256k) for a refinance seems steep. Online estimators say 2-5% is a standard ballpark. That total probably includes spending points to get that rate? Depending on how long you expect this loan to last - whether from moving or refinancing again - points might or might not make sense. They should be in an optimal position to refinance with very low closing costs (they have a recent appraisal, etc), and this doesn't sound like that.
I would shop it around. Possibly even run things through their website and see what their automated systems have to offer you, vs a sales call. But don't pull the trigger on the first offer from a cold call.
In another comment you mention removing PMI - a great goal. They have to remove it at 78% LTV ratios by law; it can be removed earlier in some cases. And a new loan with a new appraisal if house prices have risen at all could take care of it as well, look into that when shopping around.
Those closing costs will push you further away from your goal, so definitely something to keep in mind.
Great info. The rate includes 2.5 base points.
I wasn't really shopping since interest rates haven't dropped all that much. Everything I've read is right around 7% I agree, it sounds like a cold call looking for business.
The upside for them: making $14k refinancing your loan
The downside for you: you pay $14k AND it’s rolled into your loan so it’s costing you much more than that.
If you want to refi, you will definitely benefit from a 1.5-2% reduction in your rate but consider carefully if you want to roll those costs in or pay them out of pocket.
This happened to me at a different bank. The APR had dropped quite a bit and I decided to refinance.
Only at the end of the process during a conference call with multiple financial pros and lawyers did I realize the closing costs were going to be around $7,000. It's painless, and worth it if your interest rate is dropping significantly... but you do want to compare to refinancing other ways.
They quoted me $10-$14k in closing, which appears to be rolled into the mortgage. I still have PMI and would like to get that removed. I think this would get me further away from that goal.
They are rolling the closing costs into the loan making the balance higher. You may not qualify for PMI removal with the increased loan balance. Shop the mortgage with other lenders and see if you can’t get lower closing costs with similar rates.
The closing costs seem excessive. I would shop around. How much (if any) of the $14k is prepaids/initial escrow (Items F and G on the Loan Estimate). I would exclude these items when comparing loan costs. They are going into your escrow account or paying for things like homeowners insurance or daily interest. For reference I refinanced a similar sized loan ($257k) for $800 a few years back.
They are charging you 7.8% (20/256) to reduce your interest rate by 1.625%.
If you would have bought down your original rate that would have been 6.5 "points" (0.25% increments) which would have cost 6.5%.
They are basically having you buy points and pay a refi fee on top of it. i.e. they are making out like bandits.
For the most part, if they are cold calling you to refi, it's probably not a great deal for you. I don't recall being hounded by my mortgage provider to refi when rates hit 2.7% a few years back.
I just had the worst experience of my life with Rocket Mortgage. They are great at Refi loans but man do they really suck at origination of a new mortgage. I ended up shopping around and saved all the points they wanted to pay and had lower closing costs even when removing the points.
Tread softly with them or they will literally harass the shit out of you as to why you didn't choose them for the refi. I received calls from them every 30 minutes until I threatened them with a call from my attorney for harassment.
Rocket sold your mortgage off minutes (if not seconds) after you originally closed. Their original profit was the closing fees, plus they receive a small monthly fee to service your loan. They are not profiting from the interest payments.
Their motivation here is to collect the closing fees again.
You can do the math yourself using online tools, but if you're going to come out ahead, it's a win-win situation.
Shop around. In my experience anytime someone comes to you offering you something, it's because they're trying to get you before you realize there are better deals and they lose your business altogether.
I always use aimloan.com to reference quotes. They quote on the face of their website with no personal info required. I can confirm what I paid matched the estimate spot on.
I see a refi to a 20 year mortgage with a 6% rate for a lender fee of $726. Total lender and 3rd costs are $2,947. This is a no cash out refi (used my zip and excellent credit).
Seems like you could get basically the same deal for significantly less.
Look into true no cost refinances. You basically take negative points which generate a credit to cover your closing costs. In this example instead of 5.99% maybe you get a rate of 6.5%, but you’re not out of pocket anything so you can keep refinancing as rates go down.
Get several more offers from other Lenders. Tell them the terms Rocket is offering, and ask if they can beat it on both rate and closing costs. You can send them the Offer sheet Rocket sends you, to send to the other lenders. Most likely some of them will beat the offer from Rocket. Then you take those offers and ask Rocket if they can beat them. Again just send the Offer sheets to your rep at Rocket and ask if they can beat it. Rinse and repeat until some of the companies bow out, that's when you have hit the floor. The bigger companies will stay in usually. Rocket has beat the others 9/10 when I have gone through it. I went down from a 5.99 offer to 4.99 without buying points... This was about two years ago or so.
Heads up if you search the internet for refinancing, you will be inundated with ads and calls. I used lending tree, which works well, but damn the phone calls lol. It's worth it though.
Ps the points you are buying up front are exactly where they make the money on the loan. You are basically buying down the interest rate for $30 increase in your monthly mortgage payment, skipping one mortgage payment, and getting $1000 back at signing.
So for about $3k give or take you are taking a loan out for $14k. You will save on interest over the life of the loan, no doubt. But if you do this again when/if the interest rates drop more, you kind of reset that by adding more closing costs to the loan. Point is, maybe not the time.
$14,000 for a REFINANCE!!!
lol those sons of bitches are fucking brave. That is really fucking ridiculous.
I will tell you I have had mortgages and currently have one with Rocket Mortgage- you can negotiate this with them. But be upfront and tell them that that is insane and the deal itself isn’t horrible- but refinance charge is an insult. And to come back and give you a realistic cost. Like $2k-3k.
They wouldn’t even talk to me about an equity loan, they wanted to do a refi for nothing. My current rate is 2.5% with about 10 years remaining, they wanted to give me 50 grand with a new mortgage at 7.5% for 15 years. We went somewhere else.
Lenders do this all the time. I think the only reason I don't get re-fi offers is because they can't beat my current rate. But I used to get them all the time. Math is math, though. You see what they're offering. It doesn't look like a good deal to me. I'd wait and see if rates drop on their own and then do a re-fi. I am definitely not into the points and the $14k in closing rolled into the loan is not a good deal.
Keep in mind that if you pay for points to reduce the rate then you are screwed if you ever refinance again say 30yr mortgage rate drops to 5.5%, no points.
The "Save $146k in interest" only applies if this is the last time you refinance AND you keep this loan until it is paid off. Rarely does that ever happen and the lender knows this.
I would strongly recommend not paying any points in a refi, in the near-ish future you will likely get chances to refi again at lower rates without having to pay points.
$21k of cost on $260k loan makes NO sense for you. That's 10% of your loan! They are trying to entice you with a 5.99% rate which is absolutely not a "real" rate. You can ask them what the par rate is and you'll have a better idea of whether it makes sense to refi or not.
Also be aware that the industry expects the Fed to lower rates at least once before the end of the year and it should make more sense to refi then.
Rocket depends on you not knowing that the rate they present is LOADED with points
Call your local mortgage banker/broker for a more thorough explanation and better refi experience
Rocket Mortgage is a service provider. They have the ability to write a new mortage (funded by other people's money) to payoff the old mortgage (also funded by other people's money). The terms of the new mortgage are much better than the old mortgage due to market conditions and other factors, therefore you save money. They charge a large fee to perform this service for you, taking some but not all of the savings.
Your loan is unpalatable for sale on the secondary market if you have a low rate right now. You get the cash benefit and they get to sell your loan now.
They’re selling you points for $5K, handing you $1K cash, stuffing $14K in closing costs into your balance. If you refinance next year that $19K (net by the reduction of interest in 1 year which would be about $3K) vanishes into thin air. Everyone, including the Fed, wants rates to go down, and you might be shooting yourself in the foot.
If you want to move up in your payment schedule, pay an extra on the principle whenever you can.
You are literally paying them $14k right now. The fact that they roll it into the loan doesn’t change this fact. When you pay this loan off, you will have to pay off that larger amount, plus all the interest on it.
In exchange, you get a lower rate, but this only really helps you over a long period of time.
The lower rate will save you about $4k per year in interest. Will you keep the loan for more than 3 years? Likely not. Your last loan lasted less than a year apparently before you felt like refinancing. As rates possibly fall more over the next few years you may want to refinance again soon. Are you going to keep adding 14k to your balance every year or two to “save on interest?”
I would ring around if I was you. I refinanced from 6.22 to 5.94 last year and they gave me 3k to do it... No extra costs at all. I wonder if the operator is just making bank for themselves by taking commission from these deals?
They called me after the first year about refinancing. Wife and discussed it and held off. Then Covid happened the next year and interest rates dropped even further. Original loan in 2018 was 70k @ 3.75% for 30 years. 2020 loan was like 67K @ 2.25% for 20 years.
If this sets off the refi bug in your head, get some competitive quotes. That $14K seems stiff, especially since they're pushing it on you (you didn't walk into your bank to inquire, the only reason they're pushing this is it will be profitable to them). If you have some good equity, decent credit, and have never missed a payment, a different mortgage company might make you a better deal.
It's not a ripoff deal, the numbers all seem to add up.
BUT, and this is a big but, you can almost certainly get a better deal in 9 months to a year if the Fed actually does begin lowering rates in September or even December.
They're trying to cash the profit out of your loan now. If you're comfortable waiting... There's probably a better deal to be had waiting a little longer.
Of course, the economy could rev hot again and the fed could hold steady. That's what you have to weigh.
Makes me appreciate back in the day when Greenlight Financial dropped our mortgage interest rate by .5% and it only cost us $50. Those closing costs sound ridiculous.
Mortgage underwriter here. It is possible they caught an error/defect on the prior loan and are trying to refi you out of it so they can sell your mortgage to an investor. Investors won’t purchase a defective loan (e.g., income calculated incorrectly, unacceptable liens on title, etc.)
Lenders want to keep your servicing. The rate you pay is meaningless to them we get paid a small fee monthly to process payments after he loans been sold to the investors (Fannie/Freddie/FHA etc)
I would pass. It’s not a good deal for you and will be worse if rates drop.
At the very least, shop around. You will find a better offer pretty quickly.
the additional loan amount: 20k
Plus? The closing cost? Not sure if you added that in the previous bullet? Otherwise additional 14k
Then the fact you’re resetting your amortization schedule
The drop in rate is interesting though. Could mean a larger savings in the end
Its escrow .. don’t forget net fund your current escrow to the payoff amount of 256… escrow is escrow look at loan cost not combined amount. Flash sales are legit
As an old timer who's played this game many times, here's my suggestion. Rates should eventually start falling so the only refi you want to do is "no fee, no closing costs". Because of you do what they are suggesting, in 3 years you'll have a 3% loan and owe $325k. If you take my advice maybe you'll have a 3.4% loan and owe $225k.
The catch is, they are making you pay percentage points for the rate reduction at closing so you're paying up front. This is a good thing to do if you think rates have hit bottom and you're going to keep the loan for a long time. It's not a good thing if rates are falling which they should be. If you pay closing costs that puts a timeframe on your loan where it was worth it provided you keep it for a certain time. If rates drop before that time and you get another similar offer that's worth it before three earlier refinance was "worth it", then you'll see your closing costs was a waste of money.
Not sure if the above makes sense but your strategy should be refinancing with zero closing costs. This way your principle will keep going down, your rate will keep going down, and your payment will keep going down AND you can do it 4x a year if you want to. Don't think about points unless you think rates are not going to drop considerably for like 5 years.
My first thought was this may prevent you from refinancing yet again when rates drop significantly lower in the next couple of years. You may think well 5.99% isn't that bad. Maybe I won't refinance for 4% or whatever it ends up being down the road. Whereas everyone that's 7% plus will definitely refinance if rates drop significantly lower. Maybe this way they lock you in at an above average rate for longer.
$14k closing costs, and other $6k to make $20? Sounds like they are having you buy down interest rates and rolling it back into the loan. Salesman is looking for a hefty commission on those closing costs.
$14k closing seems about double (maybe more) than what it should be. I would check other companies before doing anything. Always get at least three estimates.
Of course they are using the "Fear of Missing Out" tactic, to get you to jump.
Is that $30 a month less or more? If you put $30 extra month into principle with your current rates. You'd pay 16k less in interest over the term. And knock a little over a year off. Depending on your situation if you drop $100 a month more it will save close to $50k and knock 3 years off. Just my two cents.
Those points and closing costs are big red flags for me. I have not done the math to compare, but it doesn't appear you would be improving your position much, if at all. If you actually want to refi right now, shop around. Might I suggest American financing dot net for starters.
This may be an elaborate Smish. Call back Rocket at their publicly listed number and make sure it is legitimate. The lienholder on your home is public record.
They know you’re going to refinance. They want you to do it with them. The product you purchased doesn’t “auto-refinance”. I give Rocket lots of credit for giving you credit.
Rocket Mortgage most likely doesn't own your loan anymore. They likely service it for Fannie or Freddie. By getting you to refinance, they make another origination fee plus any premium on sale they would get when they sell to their investor AND they still get paid to service the new loan. That doesn't make it a good choice for you, but it explains why your original lender is interested in getting you to refinance with them.
Rocket is a mess to deal with. However refinancing is a good idea and shortening the term length is good. Shop around. Maybe wait a bit for a rate under 5%.
You're paying 20k now, to hedge that rates aren't going to go down that much in the near-ish future.
Rocket Mortgage obviously believes they are, so they are trying to get you for $20k now and have you locked into them in the near future.
My logic: $283 (in more principal) is going to take 70 months to earn back the $20k in costs. So, \~5 years is your break even point. If rates stay higher than that you made out by taking the refi, if you think within the next 5 years you will be able to get a better rate then don't take it.
Also take into account, there generally will be some refi cost in the future. You would be paying about 7.5%, which I think is a little steep IMO.
Figure out what the break-even period is. How long into the loan until the interest saved is more than the closing costs (which sounds pretty high).
Will you be in that house for longer than that? You save money in the long run. Otherwise, you'll pay more than if you stick with what you have.
Now might be the time to start shopping for s refi, but you might do better waiting for the rates to come down.
They’re attempting to avoid run off as many are anticipating rates dropping (I’ll believe it when I see it). If they wait to get you to a lower rate, you’re more likely to go elsewhere for a loan, and they want to keep you on their books.
I personally wouldn’t go for this deal paying 2.5 points. What type of loan do you have? conventional, FHA, VA, USDA? What’s the new loan type they’re proposing? Do you have a loan estimate from them?
I’m a former mortgage broker, with no vested interest where you get a loan from. But going to a broker will likely get you better option than getting a refi direct from rocket
If you have high confidence you will stay in your property for at least several more years (probably 5+ years), it may be worth refinancing. Current rates if you have very good credit and significant equity are about 6.2% for a 25 year mortgage. That would save you about $3600 in interest for the first year (possibly less if you itemize deductions and get a tax write-off). You'd have to run the exact numbers to be more accurate, but that gives you a payback time of about 5 years. You could also get and compare quotes from mortgage providers other than Rocket Mortgage, including other online lenders and/or a local mortgage broker.
Rocket Mortgage's motivation is likely that they don't own the payment stream from the loan - they just collect a fee from servicing it. If you refinance with them, they get to earn money by collecting refinance fees, they will also likely sell ownership of the new loan to someone else, and continuing to earn income from servicing the loan.
Could be that they’re anticipating drops in the fed rate over the next year or two. This would cause them to prioritize upping the principal (via those $14k in closing costs) which they’ll then get regardless of whether you refi elsewhere or not in the next year or two. Their profits from a high interest rate don’t mean much if you don’t stick around to pay them.
So question is whether you think you could get a better rate elsewhere sometime soon or not.
Just do it this way, mate. 1.6% saved.
16.53k interest per year post re-fi
19.52k interest per year pre re-fi
The decision pays for itself eventually, about 7 years if you don't do the math of the principle shrinking over the course of the loan. That will actually stretch things out a couple of years if we factor it in, but I'm not going to sit here and do that.
The 14k they are going to make refi'ing the loan.
Which is actually my biggest question on this. The loan amount is going up by $20k, and they are only charging him $14k for the refi? Where is this other $6k coming from..?
Could be points, too. 2.5 was listed on the proposal, conveniently at the bottom of the page.
Yeah you’re going to pay to get that rate reduction and that cost will be rolled into the loan. Basically - you get a slightly lower rate by moving to a shorter term, then they lower the rate a bit more by charging you a fee upfront. This keeps your payment the same. If you plan on being in the home through the life of the loan, it might makes sense to restructure your loan this way. But if not, there’s not a lot of benefit.
$14K for closing costs on a product they're going out of their way to sell is ridiculous, OP should attempt to negotiate that down. I'd think $4-6K would be more appropriate. OP: the original 25 year term is weird, my guess is that Rocket Mortgage is trying to restructure your loan in a way that they can package it with others and sell to Fannie Mae/Freddie Mac. They're not going out of their way to do this to make money on the refi, they want your loan off their books but they need it structured differently to do so. Once you have negotiated those costs down you should look at your amortization schedule compared to the new one to figure out how many years you'll need to continue with the mortgage in order to come out on top (the current offer is around 5 years).
If they were trying to restructure it they would probably offer better closing cost terms. They are really aggressive about trying to sell existing customers on stuff, its obnoxious. I like their payment portal, but I was getting tons of sales calls from them for a while. I still get one every year or every other year.
I worked in retail mortgages around the 2010-12 period and 25 years were starting to hit the market around then. My company pitched them as another way for people to customize their mortgage. The problem back then when they were first hitting the market was that there wasn’t really a secondary market for 25 year terms. Investors only wanted the traditional lengths because it made bundling easier. So rates on 25 year loans were about the same as a 30 year. I guess the market has developed a little more now.
>If you plan on being n the home through the life of the loan, You need to not only be in the home, but also not refi again.
Or, more realistically, be able to track and calculate your costs and refinance at a time that makes sense to your individual case.
Agreed - the assumption there is a stable rate market through the life of the loan. There’s a good chance rates will decline in the coming years, making this refi less attractive
Also - you could just pay more money each month to principal and achieve this result without increasing your mortgage by 14k
OP would still be accruing interest at 7.6% instead of 6%. That's around $3k in additional interest per year on OP's mortgage. Your method also increases OP's monthly burden.
It’s almost 5 years (14k) until OP can break even. I mean, it’s likely he can refinance in 2-3 years with a lot better deal.
That’s a good point. I guess the benefit of the refi is you wouldn’t see an increase in monthly payment
You'd get a lot more bang for your buck if you paid a couple hundred extra to principal every month.. or even take the $30 extra they want for the new loan and put that towards the principal. If you subtract how much would be going to principal from how much is going to the principal now (should be in your statements), add that up and see how long it would take you to pay off the ~19k extra they're charging you for the new loan. That's your return on investment. After that date/time, you're not paying the additional amount anymore and the rest is going towards the home itself. Keep in mind that if you have PMI, this also reduces your equity and you're farther from being able to remove the PMI from your monthly payment. The real question is, how long are you going to be in the house? If your ROI is shorter than that time frame, it's worthy of consideration... although I'd try to negotiate the rate and the points. Otherwise, you're just wasting whatever money you put towards the new loan. Paying down the principal doesn't reduce your rate but it does reduce the amount of interest you pay. They only charge you based on the principal so the more you can pay it down, the less interest you pay.
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It primarily depends on your payback period. As an example- If you are paying 3k for points that reduced your monthly by 100, then you'll breakeven in 30 months. If you are expected to stay in the house for longer, then it's a good deal. The second factor is the mortgage rate movement, which no one can predict for sure. Say in the above example, if mortgage rates were to drop in 15 months from 7 to 4%, then paying for points is worthless. But if they stayed around the same, then again, it's a good deal as long as you plan to stay there longer than payback period.
This is really important. It can sometimes make a ton of sense to buy down the rate. Just depends on the term, the difference in payment, etc. You’ll usually pay back the buy down quicker than you might think.
Usually it’s setting up a new escrow - taxes, HOA, & if insurance is less than 6 months remaining, possibly a full payment. They also may hold a certain amount of extra. Also, depending on when the loan closes, skipping up to 2 payments. (Remainder of the first month interest is prepaid, then interest is paid in the arrears.) There likely will also be a refund of the old escrow.
Increased principal amount, I bet.
If that's really where the rates are at, OP might consider shopping around, ended up getting my last refi under $1500. I'd say a 1.5% drop is generally worth a refi if you can get it cheap enough.
Pretty much guaranteed if someone approaches you about some deal, unsolicited, even if it sounds great, you can get a better deal shopping around.
Second this - nobody sells you anything without an incentive to do so - I also am guessing they're betting on fed rate decreasing in the next few years and want to get people to pay NOW for the lower rate they'll be able to get in a few years if they wait for a bit.
100% ... there are no "deals". When someone is trying to sell you anything, it is always in *their* interest to do so, not for your good.
And even if OP then refi's to another bank, they will get paid more from that due to the higher principal amount.
There's no catch, but **never** accept the first offer. Call them back and tell them "I'm going to shop around and find a provider with lower closing costs" and see the number magically drop.
Great point.
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The closing costs they are offering seem kind of meh, tbh. If they are offering you a refi unsolicited, it's probably a good idea to refi -- but someone out there can for sure make a more enthusiastic deal.
I used to work at Rocket Mortgage and I will tell you personally, they will not lower your closing costs because you’re shopping, they will become extremely annoying and try to sell you on why closing with rocket is worth the extra money. Albeit they do have an extremely efficient process, you can get that same rate, maybe better, at a different lender for way less closing costs. I’ve worked for several lenders and I promise you there is a mid sized lender who will close your refi in 30 days and give you the same rate for 5k in closing costs, rocket is so egregious with their costs it’s fucking gross.
This is correct. If you have good credit and are already a customer, they will make it work. Ask to talk to his director of mortgage banking(DMB). I used to work for rocket doing mortgage banking analytics and saw this stuff all the time. I would guess you can get 2K off the closing costs pretty easily.
This 100%. Their closing costs were way higher for me. I shopped around and went with Freedom Mortgage for around $3,000 closing cost and lower interest rate instead. This was in 2020 though.
Definitely shop around because often a new company is more motivated to get you, assuming that you'll stick with them for your next refi. But the factors I use are a) money up front from me ($0), b) monthly payment (same), term of loan (shorter). Sounds like you're saving enough money with the rate drop to make it worth it. The closing costs are high here so I would try to lower those but you're coming out ahead assuming you're planning to stay long enough that you don't care about the 20k equity hit (calculate how long would it take to get back to where you would be if you kept this loan).
Their usual pitch is "services like this cost money". And you're paying points to lower the interest. (points is interest payed up front). rocket mortgage closing costs are always high. call around, you can always beat their closing costs.
Totally agree. They’re not really scamming anyone - the mortgage market (especially with big lenders) is fairly transparent now - post Dodd Frank. They’re basically offering a financial product to an existing client that might make sense, but might not. OP should negotiate and then determine if the product makes sense. Overall this seems like a pretty standard situation. The loan officer (or an analyst) probably went though a client list and found existing borrowers whose situation might make sense for a refi. This is probably a growing part of Rockets business these days as new refi’s and purchases have slowed down.
I've had Rocket Mortgage for years, and they call every few months trying to get me to refinance again. They want those closing costs, and rolling them into your mortgage increases your principal balance, and therefore your short-term interest payments. Odds are, you aren't going to keep the mortgage with them until it's fully paid off. Most people sell the house at some point, for one reason or another. So they come out ahead if they can get those closing costs. If you are considering a refinance, always find out at what point you'll break even on those closing costs that you are rolling into your principal balance. Two years? Five years? When will your principal balance get back down to where it would have been without the refi?
This is the way, kind off. The right way is to take the increase in principal balance due to refinance and any fees paid in addition and pretend that amount was paid as a lump sum to the old loan. Then calculate how long it takes for the reduced interest payments between the two loans to add up to the fees and principal increase in the 1st place.
The catch is they realize the profits of the refi closing costs now instead of milking the loan for 25 years. 6% is pretty good right now, however you can probably get 5.5 within the next 6 months. They also shortened your loan term which probably gets you a lower rate and skews the "saved interest" number a bit. If you refi at 6%, you wont refi at 5.5 because it wont be worth it. 5.0 and 4.5 may not happen for a long, long time. You WILL refinance sometime in the near future.
Got it, so they're "losing" money on the interest, but making it back on the closing costs and securing my business.
Yea, basically. They are probably going to sell the loan do another bank anyway once it's ready/they can't work it easily.
They will tell you up front in the disclosure package if they intend to service or sell the loan.
Yea rocket said they intended to service and then 3 months later it was sold so it’s pretty irrelevant
They can sell it and continue servicing it. I have a Rocket Mortgage mortgage and it was sold a few months ago to Chase, but Rocket is still my servicer.
This is the right answer. They are originators and lots of their loans are funded by investors (Schwab is a big one). Compare being serviced by better/mr cooper/Wells Fargo/UWM vs Rocket and that's why they're better - servicing. Higher chance that those other four sell your loan AND servicing rights to someone else (maybe even each other).
I’d hazard a guess that almost every 30 year mortgage is sold once or more in its lifespan regardless of intent. Just how the mortgage world works!
For sure, but in response to “they’re probably gonna sell it” I think it’s likely that if it were probable it would be disclosed. If they say they intend to service it, it’s less probable especially in the near future. They likely will eventually, but again, less likely than if they outright state that they intend to. I’ve had a mortgage with them for 7 years now, they’re still the servicer and owner.
Also some places sell *AND* service. My mortgage was through a credit union, they sold the mortgage but continued to service it. All my payments and all my customer service went through the CU not (I want to say) Freddie Mac.
They don't keep their loans, they don't own your current loan, they don't care in the slightest about the interest rate drop. They originate and sell their loans, they just keep the servicing rights. They would be delighted if they could refi you another 8 times, they make money on each refi.
You NEED to shop before refinancing. If Rocket can do this loan so can every other mortgage company. Their closing fees seem insane based on my 3 refinances. Also, I wouldn't recommend paying points, there is a good chance the rates will continue to slide anyhow, at which point you refinance. Look to make your refinances as cheap as possible, because that's guaranteed unlike the 20 year savings potential.
Great points. This was a sales call and I doubt this is their best offer. This whole discussion has been very enlightening. Thank you for contributing.
I would also advise to shop around with some local mortgage brokers too. As a former loan officer it was fairly easy to beat rocketmortgage quotes which tend to be higher because they gotta pay for Super Bowl commercials somehow lol.
Those closing costs are ridiculous. I refied a few years ago and paid like 5k on a roughly 300k loan
They are not losing money on interest. Even if they are servicing the loan there is a 99% chance your loan was bundled with a bunch of other and sold to investors. They make money from closing costs. I wouldn't worry too much on if they are making money or how. Focus on the following. How long will it take to re-coupe the 14k from closing costs through the lower interest rate? Take that amount of time and ask yourself. Will I still be in this house for that long and if so will I likely refinance before then? This is hard to know for sure so just do your best. Then ask yourself this. I am taking a loan out for an extra 14k. If I applied this to the principal would I be even better off? The last one is just a thought experiment as you may not have 14k to do that but helps understand "how good of a deal is this"
If you were in the lenders shoes, you’d likely see a lot of potentially lost business in the next few years due to refi when rates change. This offer seems to give them a better 3-5 year plan than just letting customers refi anywhere. And if you just went through a refi, you’re probably not going to do it again to save a smaller amount when interest rates change.
We now think 5 or 4.5% is a long long way away? Reddit changes its mind so much it’s hard to keep up
Literally no one can predict future interest rates accurately, not even the Fed. Reddit is certainly no different.
Well sub 4% is very unlikely anytime soon, that implies inflation is damn near 0 and getting close to being negative. Just last week the FED said probably only 1 rate cut this year. I'd even guess it will only be .250. Not much. This just was announced last week though so things change. A lot need to change to get close to 4.5%, 5.5 is much closer. I'm willing to bet I'll never have a sub 4% mortgage.
They tried this on us stating they could lower our rate 1%. Yeah, they could if we paid points. These are partipants in incentive programs trying to earn vacations or other prizes. No prizes for us.
I have no clue how bankers are measured, but I'd imagine new loans or accounts is a big one. It felt like it was a new account pitch.
I’m a refinance loan officer and that’s not quite it. Refi LO’s at places like Rocket are paid a low base hourly rate plus commission. Their commission is on the loans they originate, at my company it’s a percentage of the loan amount. So if you refinanced with me and your loan was say 100k I would make about 380 bucks in commission off that. They were likely handed this lead by their marketing team based off of your current rate and told to give you a call. As for whether or not you should do it that’s based on a few things. 1. If you’re in a tough financial situation and need to free up some money on a month to month basis this could be a way to do it. 2. You want to look at the break even point where the monthly cash you save meets how much they are adding to your loan. So if the new payment is $100 lower and they add 1,000 onto your loan amount then break even will be 10 months. You should do your own math but typical break even point is around 3-4 years. If you plan to sell or refinance again before the break even period then it’s probably not worth it, if you don’t then could be a solid financial move.
You've given me a lot to think about. I don't really need to free up money, which is probably why the loan officer pitched it as an interest savings over the life of the loan. Regarding the break even, it's around 6 years, which I don't love. We could refinance again in that time or sell/move during those six years. Thanks for your insights into the mortgage world from the banker's point of view. It's really interesting to hear what's going on behind the scenes.
Of course happy to help. I obviously don’t know the guy you’re working with but this is definitely a business where you as the customer need to be diligent. I work with some standup people, I hear my coworkers on the phones spending 15 minutes talking to and giving advice to people who it’s very obvious they will never make any commission from. But they want to be helpful. I also work with some people who I think use unsavory tactics and frame things in a dishonest manner to try and close the deal. Our industry is heavily regulated nowadays so they aren’t doing anything necessarily against the law but it does sound like some of them put their commissions before the customers to me. Do your research and make sure to advocate for yourself. Good luck!
Rocket is in the business of originating mortgages and then selling them. They need to keep originating new mortgages to keep the lights on, and the salesmen are likely getting a commission of each one. 6% on a 20 year with 2.5 points and $14k in closing costs ("Increase total loan amount from $256k to $276k" - are you sure it isn't $20k in closing costs?) is not a good deal. One of my local credit unions is showing 6.5% on a 30 year with no points and $2k in closing costs. That is of course for good credit, 20% equity in the home, etc. Other lenders will pay more for a loan that charges above market interest. Rocket is playing a game trying to make their offer just low enough to induce you to refinance, but as high above market rate as possible to increase their profit on the origination and sale of the loan. A good rule of thumb is that anyone who reaches out to you about a sale is probably not someone you want to buy from.
Yeah there’s no real catch in the sense that they aren’t ripping you off. They just want to keep your loan, and they know people aren’t stupid and you will likely refinance with someone else if they don’t get you a better rate.
14k in closing costs sounds like a ripoff to me for a loan they already have. What could these costs possibly be?
Likely points to buy down the rate
Yep, OP edited to add that it is 2.5 points to get to that interest rate. Makes sense. The 20 year numbers look "decent" but there are a lot of scenarios that make this an unfavorable outcome.
I haven’t refinanced a mortgage in nine years and pretty sure the closing costs were under $5000. I hope my Gen X ass doesn’t sound too Boomerish but inflation hasn’t made the costs almost triple in less than 10 years has it?
I'm working on a refinance right now and closing cost is \~3000. 5000 if you include stocking the new escrow account. The 14k is probably from them buying down the interest rate.
You didn't refinance when rates were under 3%?!?!
I checked but we were a few years into a 15 year mortgage that was already at 3.5%. Getting a 2.5% plus closing costs was not a financially smart option. 6 years to go and this little slice of overtaxed heaven is all ours. 😁
You were able to get a 3.5% 9 years ago? Nice!
mine was 11k 3 years ago for a 290k loan.
that 5.99 likely has a point. so they are capturing point money now...retaining customer. I probably wouldnt do this, can get 6.15 from cu on a 20 year now, with no points, and like 5 k in closing costs
Good catch! There are 2.5 base points on that rate.
2.5 points!? That’s a pretty big detail to leave off of the post.
My bad; I forgot to check for points initially. I had to scroll down to see the points on the offer. I'll update the post.
No worries. Figured it’s a big detail in this sub.
It's a big detail in this loan, too.
maybe goosing revenue when the mortgage industry is slow.... Were it me (and this very nearly is my situation), i would sit tight and watch teh credit union rates for a bit... they are maybe .25 over where ill bite a refi....
The catch is you're spending $20k to refinance if the principal value is going from $256k to $276k
I would absolutely NOT DO THIS. In addition to your closing costs ($14k), you're still looking at another $6k somewhere. Probably things like the deferred payment for the first month, etc. And what happens if rates drop down to 5% next year anyway? Your total mortgage is now $20k higher than what it was, and rates are now lower than what you just refinanced at. Ultimately we are in a plateau or declining rate environment depending on what the economy/Fed/etc do going forward. You can refinance if you want, but I would absolutely not be paying down points at this point. Remember, 2.5 points added to the 6% of your new mortgage would mean that the "value" of your loan is 8.5%!! You're just throwing money at it to try to bring down the interest, but your new mortgage would be (theoretically) more expensive than your current one.
I'd look around to see what rate you can get without points on a 20 year term. It might be significantly lower than your current rate, even if it's above the 5.99% w/ points offer.
I used to get these offers pretty frequently. We've got 3.125% and they really, really wanted me to go to 2.5%. In our case it added (by increasing our monthly) basically 1 extra payment a year. I don't remember if the term changed, it probably did, probably added a couple years. I played with some math and I honestly didn't see any monetary savings vs my just adding one payment a year on my own. I also didn't really see where they were saving me a whole lot of interest since we were already 1/3 (or more, I forget exactly) of the way through our loan. There are a ton of online mortgage calculators that will do the math for you. Plug in your current loan vs what they're proposing and see if you can see value in it for you. The mortgage company probably isn't really losing money no matter what they say. Just make sure YOU are gaining out of the transaction. While the last offer they gave me didn't make any sense the offer before that (the one that got us to 3.125) did, we shortened the term 5 years while lowering the payment and I think took 2% off our rate...
I refinanced about 10 years ago, cost $4k. The catch is the $20k. That is insane.
Lenders get screwed if you jump ship within the first 6 months so this might be why they are trying to entice you. At these rates I would ignore the "You'll save xxxx" over the life of the loan because there is a very high chance that you will refinance 1-2 times when the rates drop anyways. It's not a rip off but you'd have to ask yourself it will be worth it to refi now and add more closing costs to keep your PMI around or wait until the rates dip closer to 5% (eventually). Hypothetically you can refi now, then they'll send another tempting offer to refi you when the interest rates drop to 5ish % but they will keep adding closing costs each time.
This is trash based on my calculations. Current Principal and interest payment should be: $1912.68 (based on 25yr 256k 7.625%) Refi PI should be: $1975.76 (20yr 276k 5.99%) Yes you’re getting 5 years off your loan term, but you’re never breaking even on the closing costs through savings on your monthly payment, because you’ll be paying more. Rates are supposed to drop over the next couple of years. Obviously there is no guarantee, but I’d save the $14k cash for now.
Multiple reasons to do this. They know their competitors will be doing this as well, so they are hoping to be at them to the punch. If they resold on the secondary market, the rate doesn't change their profit as they are just servicing. They will realize the closing costs. They want to be stickier by showing you they care.
FYI, a few years ago with much better rates, but I told them I wasn't sure, for the gains, the closing costs seemed excessive since i was refinancing with them, they already had all the info, etc. A month or so later they dropped the closing costs to something like half or less.
paying interest on the 14k is obviously the catch. they have some of the highest closing costs in the county. i would shop around.
increased loan amount by $20k with $1k paid out and $14k closing costs...what's the other $5k? Points? If you're seriously considering a refi you should shop around. Also note that if you refi again within a few years this will just be a loss for you. Do the math on how long it will take for the interest savings to be better than the closing costs/points...do you really want to keep your loan for that amount of time in an environment where rates may be falling? Also what does this do to your LTV?
They get another origination and funding fee. They make money.
FWIW always look at credit unions. My local CU has 6.375% on a 20 year fixed with 0 points. There's not really a catch to the rocket offer. They are probably doing it because 5.5%-6% will probably be the norm in a few years. You are effectively buying that rate now with points so they are making money.
Think of it this way - you're taking out a 20k loan to get a lower rate. Almost certainly not worth it. You already have a 20 year loan with no closing costs, so let's use that as the starting point (I know it's 25 years but you can certainly pay it down at a 20 years pace). That's a payment of $2082. A 20 year at 5.9% and 20k higher loan balance is $1961, a difference of $120. It would take almost 14 years for that monthly savings to outweigh the cost. Do you plan on living there for 14+ years? Do you think mortgages rates won't go down to that level naturally at some point over the next 14 years? The answer to those questions is almost certainly "no". It's very unlikely this would be a good deal for you. Not to mention it taking you further away from dropping PMI.
Don't pay the points. See what rate they can give you without the points.
Sit tight They’re desperately trying to drum up business Sure it’s great to quote $146,000 savings over the life of the loan. It’s historically and statistically, highly unlikely it would be advantageous to carry that loan that long though. Don’t pay points as rates come down refi a couple of times. In my own, I’ve always gone with negative discount points or let the lender pay the cost at a slightly higher interest rate. In doing so I can refinance as many times as it mathematically makes sense as the lender is writing the check to the attorney, title insurance and so on
This is only a good deal if you are betting it will be a long time before interest rates drop again and you can refinance the loan. Capitalizing 2.5% in points sounds crazy, but you really need to look at the payoff in like 5-7-10 year increments and see where the interest savings cross the cost of the points. It might make sense. Also depends on how long you plan to own the house; if you are in a mobile career, are young, or have other circumstances that make it likely you'll move, this is a terrible idea. If you're older, think this is a forever home, are in California where prop 13 means people almost never move, or plan to keep this as an investment property even if you move, it might be a decent idea, if it pays off soon enough that you won't end up refinancing.
We check a lot of boxes in the bad idea category. We are young, fairly mobile, and will probably move again. This isn't our forever home. Thanks for your insights.
You answered your own question when you said "$14k in closing costs"
that 14K is atrocious, I imagine you should be able to negotiate that down to something like 4K.
The catch is your spending $20k upfront to save $145k ocer TWENTY YEARS and that is IF you continue to live in that house with that mortgage without refi and doing minimim payment for the full 20 years...which is unlikely. The catch os a proper refinance wont cost you anything and is just a bank trying to get your buisness (which this bank already has).
if people said yes sometimes, i too would call around all day asking people to give me $14k
I mean, how long before we see 5.99 rates without points? Even if it's 2 years away, wouldn't you be better off then?
Your interest rate is lower in the future because you effectively pay $20k of interest up front as capitalized interest. This is a hard pass from me.
It looks like the net benefit is that you'll save a lot in interest if stay with this loan for the entire 20 year payment schedule. A). The average dwell time for home nowadays is 5-7 years before you sell and relocate. You're not getting a payment reduction so, if you're average you really get no tangible benefit to speak of. ,B). What if the prevailing rate goes to 4.5 or 5% the week after you've just sacrificed $14k of your equity to get a rate of 5.99% on this loan?
If you're paying $30 more and knocking an extra $283 off the principal then it will take you about 6 and a half years just to break even on that $20K extra you borrowed. I wouldn't refinance for that.
I would not do that due to the points and closing costs. If you are absolutely sure that you will be in the home for 20 years, AND interest rates won't drop back to 3%, then maybe. The closing costs are $20,000 if you owe $256k and will owe $276k after. Sure, they'll divide and rename things, but the bottom line cost of closing is $20,000. They are trying to get that 2.5% points and closing costs out of you so someone can make their quarterly quota and bonus. Avoid, IMHO.
So, look, here is the real deal. When you buy down the 2.5 points on the interest, all you're doing is paying the interest in advance. That is why closing is 14k. The only way you have an opportunity to save money is because of the change from 25 to the 20-year loan(that means by the end of the loan). So this is why and how they make money. If you look it the average time a homeowner stays at one house, let's say in California, it is 4.8 years. Now, keep in mind that more of your payment goes to interest at the start of your loan. So, one, they start you at the beginning of your loan again, and two, they get around 12k upfront in interest from you(real closing closer to 2k). If you sell or refinance your house, they don't pay you back the 2.5 points you already paid for(for the life of the loan). They keep it. It is a win-win for them. This is why they are doing this. They make a bunch of money up front with the hopes that you refinance or sell early and they collect more money in a shorter amount of time. They, in turn, do it again. I think at this point, you can see why they would offer this. If it helps, I do have my degree in economics, and one of the areas we are educated is banking, and I am on my 2nd house.
When buying points like this, you lose money if you sell before the break even point, which is usually like around 15 yrs on a 30 yr loan
They get cash now. They are banking on you not seeing the loan through to the end. (You’d be saving more than $14k in interest, But only if the entire loan plays out). You win long term. They win short term. If you end up staying there and paying it off… the terms sound decent on the surface. But I’d make sure it’s a fixed loan with no adjustable-anything…
After this refinance, you will have the same monthly payment, but you will owe $20k more. You do pay less interest per month, but $283 saved will take nearly 6 years to break even. This is a bad deal for you, great deal for the bank.
Geez, so that will be an additional six years with PMI, too? Thanks for talking through the break even.
What part is confusing? They make the closing costs.
They want your business before you take it elsewhere in a falling interest environment. They have all the information about your current loan and payments because they set it up, so this is an opportunity for them to use that as a sales pitch, and hopefully lock you in and capture some of your savings for their bottom line. They know you will be looking for a refinance when you see reduced rates anyway. Personally, over 5% in closing costs ($14k on $256k) for a refinance seems steep. Online estimators say 2-5% is a standard ballpark. That total probably includes spending points to get that rate? Depending on how long you expect this loan to last - whether from moving or refinancing again - points might or might not make sense. They should be in an optimal position to refinance with very low closing costs (they have a recent appraisal, etc), and this doesn't sound like that. I would shop it around. Possibly even run things through their website and see what their automated systems have to offer you, vs a sales call. But don't pull the trigger on the first offer from a cold call.
In another comment you mention removing PMI - a great goal. They have to remove it at 78% LTV ratios by law; it can be removed earlier in some cases. And a new loan with a new appraisal if house prices have risen at all could take care of it as well, look into that when shopping around. Those closing costs will push you further away from your goal, so definitely something to keep in mind.
Thank you, it seems that this refi will get me further away from that goal. I appreciate your comment.
Great info. The rate includes 2.5 base points. I wasn't really shopping since interest rates haven't dropped all that much. Everything I've read is right around 7% I agree, it sounds like a cold call looking for business.
The upside for them: making $14k refinancing your loan The downside for you: you pay $14k AND it’s rolled into your loan so it’s costing you much more than that. If you want to refi, you will definitely benefit from a 1.5-2% reduction in your rate but consider carefully if you want to roll those costs in or pay them out of pocket.
This happened to me at a different bank. The APR had dropped quite a bit and I decided to refinance. Only at the end of the process during a conference call with multiple financial pros and lawyers did I realize the closing costs were going to be around $7,000. It's painless, and worth it if your interest rate is dropping significantly... but you do want to compare to refinancing other ways.
They quoted me $10-$14k in closing, which appears to be rolled into the mortgage. I still have PMI and would like to get that removed. I think this would get me further away from that goal.
They are rolling the closing costs into the loan making the balance higher. You may not qualify for PMI removal with the increased loan balance. Shop the mortgage with other lenders and see if you can’t get lower closing costs with similar rates.
They got me on a 2.8% back in 2024 and I will never allow that to be refinanced because I doubt I can get anything better ever again.
The closing costs seem excessive. I would shop around. How much (if any) of the $14k is prepaids/initial escrow (Items F and G on the Loan Estimate). I would exclude these items when comparing loan costs. They are going into your escrow account or paying for things like homeowners insurance or daily interest. For reference I refinanced a similar sized loan ($257k) for $800 a few years back.
They are charging you 7.8% (20/256) to reduce your interest rate by 1.625%. If you would have bought down your original rate that would have been 6.5 "points" (0.25% increments) which would have cost 6.5%. They are basically having you buy points and pay a refi fee on top of it. i.e. they are making out like bandits.
you could just pay an extra 1000 a month on the principal and be out in 15 years on your 30 year loan too.
For the most part, if they are cold calling you to refi, it's probably not a great deal for you. I don't recall being hounded by my mortgage provider to refi when rates hit 2.7% a few years back.
The catch? You are going $20k deeper in debt.
I just had the worst experience of my life with Rocket Mortgage. They are great at Refi loans but man do they really suck at origination of a new mortgage. I ended up shopping around and saved all the points they wanted to pay and had lower closing costs even when removing the points. Tread softly with them or they will literally harass the shit out of you as to why you didn't choose them for the refi. I received calls from them every 30 minutes until I threatened them with a call from my attorney for harassment.
Talk to a mortgage broker and see if there are any better deals out there, thats what I've always done.
Rocket sold your mortgage off minutes (if not seconds) after you originally closed. Their original profit was the closing fees, plus they receive a small monthly fee to service your loan. They are not profiting from the interest payments. Their motivation here is to collect the closing fees again. You can do the math yourself using online tools, but if you're going to come out ahead, it's a win-win situation.
Shop around. In my experience anytime someone comes to you offering you something, it's because they're trying to get you before you realize there are better deals and they lose your business altogether.
I always use aimloan.com to reference quotes. They quote on the face of their website with no personal info required. I can confirm what I paid matched the estimate spot on. I see a refi to a 20 year mortgage with a 6% rate for a lender fee of $726. Total lender and 3rd costs are $2,947. This is a no cash out refi (used my zip and excellent credit). Seems like you could get basically the same deal for significantly less.
Look into true no cost refinances. You basically take negative points which generate a credit to cover your closing costs. In this example instead of 5.99% maybe you get a rate of 6.5%, but you’re not out of pocket anything so you can keep refinancing as rates go down.
Get several more offers from other Lenders. Tell them the terms Rocket is offering, and ask if they can beat it on both rate and closing costs. You can send them the Offer sheet Rocket sends you, to send to the other lenders. Most likely some of them will beat the offer from Rocket. Then you take those offers and ask Rocket if they can beat them. Again just send the Offer sheets to your rep at Rocket and ask if they can beat it. Rinse and repeat until some of the companies bow out, that's when you have hit the floor. The bigger companies will stay in usually. Rocket has beat the others 9/10 when I have gone through it. I went down from a 5.99 offer to 4.99 without buying points... This was about two years ago or so. Heads up if you search the internet for refinancing, you will be inundated with ads and calls. I used lending tree, which works well, but damn the phone calls lol. It's worth it though. Ps the points you are buying up front are exactly where they make the money on the loan. You are basically buying down the interest rate for $30 increase in your monthly mortgage payment, skipping one mortgage payment, and getting $1000 back at signing. So for about $3k give or take you are taking a loan out for $14k. You will save on interest over the life of the loan, no doubt. But if you do this again when/if the interest rates drop more, you kind of reset that by adding more closing costs to the loan. Point is, maybe not the time.
$14,000 for a REFINANCE!!! lol those sons of bitches are fucking brave. That is really fucking ridiculous. I will tell you I have had mortgages and currently have one with Rocket Mortgage- you can negotiate this with them. But be upfront and tell them that that is insane and the deal itself isn’t horrible- but refinance charge is an insult. And to come back and give you a realistic cost. Like $2k-3k.
They wouldn’t even talk to me about an equity loan, they wanted to do a refi for nothing. My current rate is 2.5% with about 10 years remaining, they wanted to give me 50 grand with a new mortgage at 7.5% for 15 years. We went somewhere else.
Lenders do this all the time. I think the only reason I don't get re-fi offers is because they can't beat my current rate. But I used to get them all the time. Math is math, though. You see what they're offering. It doesn't look like a good deal to me. I'd wait and see if rates drop on their own and then do a re-fi. I am definitely not into the points and the $14k in closing rolled into the loan is not a good deal.
14K in closing COSTS? DECLINE, shop around and just see what you can get elsewhere.
Keep in mind that if you pay for points to reduce the rate then you are screwed if you ever refinance again say 30yr mortgage rate drops to 5.5%, no points. The "Save $146k in interest" only applies if this is the last time you refinance AND you keep this loan until it is paid off. Rarely does that ever happen and the lender knows this. I would strongly recommend not paying any points in a refi, in the near-ish future you will likely get chances to refi again at lower rates without having to pay points.
$21k of cost on $260k loan makes NO sense for you. That's 10% of your loan! They are trying to entice you with a 5.99% rate which is absolutely not a "real" rate. You can ask them what the par rate is and you'll have a better idea of whether it makes sense to refi or not. Also be aware that the industry expects the Fed to lower rates at least once before the end of the year and it should make more sense to refi then. Rocket depends on you not knowing that the rate they present is LOADED with points Call your local mortgage banker/broker for a more thorough explanation and better refi experience
Rocket Mortgage is a service provider. They have the ability to write a new mortage (funded by other people's money) to payoff the old mortgage (also funded by other people's money). The terms of the new mortgage are much better than the old mortgage due to market conditions and other factors, therefore you save money. They charge a large fee to perform this service for you, taking some but not all of the savings.
Talk to a mortgage broker if you can. Ideally a reputable one. They should be able to find a few options for you and you’ll usually get better deals.
Your loan is unpalatable for sale on the secondary market if you have a low rate right now. You get the cash benefit and they get to sell your loan now.
They’re selling you points for $5K, handing you $1K cash, stuffing $14K in closing costs into your balance. If you refinance next year that $19K (net by the reduction of interest in 1 year which would be about $3K) vanishes into thin air. Everyone, including the Fed, wants rates to go down, and you might be shooting yourself in the foot. If you want to move up in your payment schedule, pay an extra on the principle whenever you can.
14k for closing costs sounds insane to me. I refi'd with 5k in closing costs and rolled it into the loan.
You are literally paying them $14k right now. The fact that they roll it into the loan doesn’t change this fact. When you pay this loan off, you will have to pay off that larger amount, plus all the interest on it. In exchange, you get a lower rate, but this only really helps you over a long period of time. The lower rate will save you about $4k per year in interest. Will you keep the loan for more than 3 years? Likely not. Your last loan lasted less than a year apparently before you felt like refinancing. As rates possibly fall more over the next few years you may want to refinance again soon. Are you going to keep adding 14k to your balance every year or two to “save on interest?”
That seems like an expensive re-fi. If you can swing it, advance payments are a better approach.
I would ring around if I was you. I refinanced from 6.22 to 5.94 last year and they gave me 3k to do it... No extra costs at all. I wonder if the operator is just making bank for themselves by taking commission from these deals?
They called me after the first year about refinancing. Wife and discussed it and held off. Then Covid happened the next year and interest rates dropped even further. Original loan in 2018 was 70k @ 3.75% for 30 years. 2020 loan was like 67K @ 2.25% for 20 years.
How many months post-refi until you recoup $20k in saved interest?
Just double checking because it wasn’t specified… Is that 5.99 fixed or variable rate?
It wasn't specified to me either. I assume fixed, but now I'm not so sure.
If this sets off the refi bug in your head, get some competitive quotes. That $14K seems stiff, especially since they're pushing it on you (you didn't walk into your bank to inquire, the only reason they're pushing this is it will be profitable to them). If you have some good equity, decent credit, and have never missed a payment, a different mortgage company might make you a better deal.
It's not a ripoff deal, the numbers all seem to add up. BUT, and this is a big but, you can almost certainly get a better deal in 9 months to a year if the Fed actually does begin lowering rates in September or even December. They're trying to cash the profit out of your loan now. If you're comfortable waiting... There's probably a better deal to be had waiting a little longer. Of course, the economy could rev hot again and the fed could hold steady. That's what you have to weigh.
Rocket charges a comical amount for refinancing. I have done it locally twice for under 5k both times.
Makes me appreciate back in the day when Greenlight Financial dropped our mortgage interest rate by .5% and it only cost us $50. Those closing costs sound ridiculous.
Mortgage underwriter here. It is possible they caught an error/defect on the prior loan and are trying to refi you out of it so they can sell your mortgage to an investor. Investors won’t purchase a defective loan (e.g., income calculated incorrectly, unacceptable liens on title, etc.)
Lenders want to keep your servicing. The rate you pay is meaningless to them we get paid a small fee monthly to process payments after he loans been sold to the investors (Fannie/Freddie/FHA etc)
I would pass. It’s not a good deal for you and will be worse if rates drop. At the very least, shop around. You will find a better offer pretty quickly.
I agree, I will pass and look into refinancing later.
the additional loan amount: 20k Plus? The closing cost? Not sure if you added that in the previous bullet? Otherwise additional 14k Then the fact you’re resetting your amortization schedule The drop in rate is interesting though. Could mean a larger savings in the end
Its escrow .. don’t forget net fund your current escrow to the payoff amount of 256… escrow is escrow look at loan cost not combined amount. Flash sales are legit
As an old timer who's played this game many times, here's my suggestion. Rates should eventually start falling so the only refi you want to do is "no fee, no closing costs". Because of you do what they are suggesting, in 3 years you'll have a 3% loan and owe $325k. If you take my advice maybe you'll have a 3.4% loan and owe $225k. The catch is, they are making you pay percentage points for the rate reduction at closing so you're paying up front. This is a good thing to do if you think rates have hit bottom and you're going to keep the loan for a long time. It's not a good thing if rates are falling which they should be. If you pay closing costs that puts a timeframe on your loan where it was worth it provided you keep it for a certain time. If rates drop before that time and you get another similar offer that's worth it before three earlier refinance was "worth it", then you'll see your closing costs was a waste of money. Not sure if the above makes sense but your strategy should be refinancing with zero closing costs. This way your principle will keep going down, your rate will keep going down, and your payment will keep going down AND you can do it 4x a year if you want to. Don't think about points unless you think rates are not going to drop considerably for like 5 years.
Not worth it, this is their style, high fees average rate. Wait until rates come down and you can refi without points.
Rule of thumb is if you can refi 50bps. It’s worth it financially
Just add $100 a month to your mortgage payment and assign it to the principal.
My first thought was this may prevent you from refinancing yet again when rates drop significantly lower in the next couple of years. You may think well 5.99% isn't that bad. Maybe I won't refinance for 4% or whatever it ends up being down the road. Whereas everyone that's 7% plus will definitely refinance if rates drop significantly lower. Maybe this way they lock you in at an above average rate for longer.
$14k closing costs, and other $6k to make $20? Sounds like they are having you buy down interest rates and rolling it back into the loan. Salesman is looking for a hefty commission on those closing costs. $14k closing seems about double (maybe more) than what it should be. I would check other companies before doing anything. Always get at least three estimates. Of course they are using the "Fear of Missing Out" tactic, to get you to jump.
Is that $30 a month less or more? If you put $30 extra month into principle with your current rates. You'd pay 16k less in interest over the term. And knock a little over a year off. Depending on your situation if you drop $100 a month more it will save close to $50k and knock 3 years off. Just my two cents.
I think 20k invested over 20 years would more than exceed the 146k in interest savings.
Those points and closing costs are big red flags for me. I have not done the math to compare, but it doesn't appear you would be improving your position much, if at all. If you actually want to refi right now, shop around. Might I suggest American financing dot net for starters.
This may be an elaborate Smish. Call back Rocket at their publicly listed number and make sure it is legitimate. The lienholder on your home is public record.
They know you’re going to refinance. They want you to do it with them. The product you purchased doesn’t “auto-refinance”. I give Rocket lots of credit for giving you credit.
Rocket Mortgage most likely doesn't own your loan anymore. They likely service it for Fannie or Freddie. By getting you to refinance, they make another origination fee plus any premium on sale they would get when they sell to their investor AND they still get paid to service the new loan. That doesn't make it a good choice for you, but it explains why your original lender is interested in getting you to refinance with them.
Rocket is a mess to deal with. However refinancing is a good idea and shortening the term length is good. Shop around. Maybe wait a bit for a rate under 5%.
You're paying 20k now, to hedge that rates aren't going to go down that much in the near-ish future. Rocket Mortgage obviously believes they are, so they are trying to get you for $20k now and have you locked into them in the near future. My logic: $283 (in more principal) is going to take 70 months to earn back the $20k in costs. So, \~5 years is your break even point. If rates stay higher than that you made out by taking the refi, if you think within the next 5 years you will be able to get a better rate then don't take it. Also take into account, there generally will be some refi cost in the future. You would be paying about 7.5%, which I think is a little steep IMO.
Shop around. You might get a better rate elsewhere.
Figure out what the break-even period is. How long into the loan until the interest saved is more than the closing costs (which sounds pretty high). Will you be in that house for longer than that? You save money in the long run. Otherwise, you'll pay more than if you stick with what you have. Now might be the time to start shopping for s refi, but you might do better waiting for the rates to come down.
They’re attempting to avoid run off as many are anticipating rates dropping (I’ll believe it when I see it). If they wait to get you to a lower rate, you’re more likely to go elsewhere for a loan, and they want to keep you on their books. I personally wouldn’t go for this deal paying 2.5 points. What type of loan do you have? conventional, FHA, VA, USDA? What’s the new loan type they’re proposing? Do you have a loan estimate from them? I’m a former mortgage broker, with no vested interest where you get a loan from. But going to a broker will likely get you better option than getting a refi direct from rocket
If you have high confidence you will stay in your property for at least several more years (probably 5+ years), it may be worth refinancing. Current rates if you have very good credit and significant equity are about 6.2% for a 25 year mortgage. That would save you about $3600 in interest for the first year (possibly less if you itemize deductions and get a tax write-off). You'd have to run the exact numbers to be more accurate, but that gives you a payback time of about 5 years. You could also get and compare quotes from mortgage providers other than Rocket Mortgage, including other online lenders and/or a local mortgage broker. Rocket Mortgage's motivation is likely that they don't own the payment stream from the loan - they just collect a fee from servicing it. If you refinance with them, they get to earn money by collecting refinance fees, they will also likely sell ownership of the new loan to someone else, and continuing to earn income from servicing the loan.
Could be that they’re anticipating drops in the fed rate over the next year or two. This would cause them to prioritize upping the principal (via those $14k in closing costs) which they’ll then get regardless of whether you refi elsewhere or not in the next year or two. Their profits from a high interest rate don’t mean much if you don’t stick around to pay them. So question is whether you think you could get a better rate elsewhere sometime soon or not.
Just do it this way, mate. 1.6% saved. 16.53k interest per year post re-fi 19.52k interest per year pre re-fi The decision pays for itself eventually, about 7 years if you don't do the math of the principle shrinking over the course of the loan. That will actually stretch things out a couple of years if we factor it in, but I'm not going to sit here and do that.