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Is There Really Such A Thing As A No-Fee Loan Or Re-Finance? And, Am I Past The Age When It Makes Sense To Re-Finance My Mortgage To Lower Rate?

Issue 47.12

I get these questions on a weekly basis.  Am I too old to re-finance my mortgage?  And, secondly how far below my current interest rate does the market have to drop before it makes sense for us to re-finance?  

First, we are never too old to re-finance from a qualifying standpoint!  If you are 92, you can still take out a 30 year fixed loan if you choose to for payment reasons!  Second, it makes sense to re-finance your mortgage when it doesn’t cost you any fees, meanwhile lowering your monthly payments while keeping the same number of years remaining to pay off your current loan. It is that simple!

Let me explain.  There is not a magic percentage that the market must drop in order for it to make sense for us to re-finance.  The main concerns are the cost of re-financing and how long it takes to make the cost of the re-finance up in the lower monthly savings that you will receive from re-financing your home. 

Today, most banks and lenders should be able to customize a loan that fits your needs (costs) while taking advantage of today’s record low interest rates and make it easier for you as a consumer to make a decision on the benefits of a re-finance immediately.

Therefore, with the main concern being the closing costs, lenders need to give an option on a “No-Fee Loan” or a “Flat Fee loan”, so it is easier to make the decision of re-financing.  The “No-Fee Loan is simply the same conventional loan but the lender or bank will raise the interest rates slightly, (Maybe a quarter of a percent) than the current best market rate, because they are absorbing the closing costs of the loan in the interest rate. So, you may pay a quarter percent higher in a 30 year fixed rate, but you are also not paying $5,000 in closing costs for the loan.  It certainly makes it easy to decide if the loan makes sense or not!

Usually it is a no-brainer to look at re-financing when you’re able to lower your interest and reduce your monthly payment and have it cost zero.  If you can take out a “NO-FEE” loan, and reduce your monthly payment then most likely it makes sense no matter how old we are!

The only other decision I like to look at is that I don’t want my clients to extend the amount of years that it will take to pay off the existing loan.  So, if we are re-financing a 30 year fixed mortgage and we have had it for the past four years, than I like to make sure the option remains to pay the new loan off in 26 years if the client so chooses for example.  Thereby the client reduces their current interest rate, lowers their payment, and keeps the same amortization schedule as we have on the existing loan, but most importantly have this re-finance cost us zero dollars.

So to answer our question from the beginning is that you are never too old to re-finance your mortgage if it saves you money.  But, we only want to re-finance if the savings are a benefit over the closing costs and thereby looking at a no-fee or low cost loan.

Brandon Hansen is a Senior Mortgage Banker, Registered Investment Advisor Representative for

Cherry Creek Mortgage / Investment Advisors International.  He can be contacted at 435-668-2840 / 435-773-4164. www.seniorbankingtoday.com

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