Issue 22.14
I get this question fairly often. And, there is no mystery. On the radio, you hear one of the largest mortgage lenders in the country, Quicken Loans, advertise that today’s mortgage rates are at historic lows and that the 30-year fixed rate is at 3.75% with an APR of 3.95%.
So, the actual percentage rate is 3.95%, not 3.75%, because of the associated loan costs upfront in a mortgage loan today. You may have origination points from the bank, processing and underwriting charges, etc. If you incorporate these costs into the loan on the front end and subtract the loan amount by these costs, then the actual interest rate on an annual basis is a result of a slightly higher interest rate annually. Thus, we get the APR or the actual or Annual Percentage Rate.
The APR is a tool for the consumer to compare lenders and or banks in trying to compare apples to apples. Some banks or lenders can charge higher fees and a lower initial interest rate. Why…some charge less fees and a higher initial rate. Consequently, the APR’s are or can be the exact same rate.
Therefore, in a “No-Fee or No Cost” loan, the lender or bank will raise the interest rate slightly, maybe an eighth or a quarter of one percent, than the current market rate that a bank will charge in costs on a normal loan. Because of having no fees, the lender is charging you the same interest rate as the APRI, because there are no fees to calculate further into the rate. So, the actual interest rate or the APR is the same rate as the initial interest rate because there are no fees.
A No Cost Loan certainly makes it easy to decide if the loan makes sense or not to refinance or purchase.
It is as simple as that because if you can refinance or purchase your mortgage loan 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, then what is there to argue? Why wouldn’t you.
Today, most banks and lenders should be able to customize a loan that fits your needs and look at loan 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 refinance or purchase immediately.
Usually, it is a no-brainer to look at refinancing or purchasing 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 you are!
The only other decision I like to look at on a refinance is that I don’t want my clients to extend the amount of years that it will take to pay off your existing loan. So, if we are refinancing a 30-year fixed mortgage and we have had it for the past four years, then 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 refinance cost you zero dollars.
So, to answer our question from the beginning, there is truly a no-cost loan out there and most lenders will or can give you various options that you can consider with your refinance or purchase and the costs that are associated with any loan.
Brandon Hansen is Senior Mortgage Banker and Registered Investment Advisor Representative for Cherry Creek Mortgage/Investment Advisors International and can be contacted at 435-668-2840/435-674-9200, or visit the website at www.cherrycreekutah.com