Whats the catch?

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0point0_IHB

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My first mortgage lender , National City Mortgage, recently contacted me with a couple "no cost" refinance options:





I currently owe 163k @ 6.5% on a 30 year fixed, 765 Fico, 27% DTI ratio, near Atlanta GA. (former SoCal transplant)





25 year fixed at 6.25% for 36 dollars more a month. (Which is what I'm interested in)


-or-


30 year fixed at 6.25% with 80 dollar a month reduction in payments.





So whats the catch? Why would a mortgage company contact me to reduce my interest rate? Are they hoping for fees in the refinance? Pad the new loans column in their balance sheet? I've filled out the application (free) and will hopefully get the closing documents/truth in lending statement soon.
 
<p><em>"I currently owe 163k @ 6.5% on a 30 year fixed"</em></p>

<p>How many years left do you have on the 30? If you have 6 years left and they are offering a new 30 year fixed for an $80 per month reduction, it probably isn't in your advantage to refi.</p>

<p>My example is obviously an exageration, but you get my point, eh?</p>
 
<p>Opoint0,</p>

<p>awgee made a very good point.</p>

<p>Also, what they offered you is an initial offer. At the miminum, you should get 6.125% (30-yr fix) by just asking. I would start my counter offer at 6%. Make sure 0 cost means 0 cost for all non-recurrings. </p>
 
<p>Check how many points they are charging. Yield spread premium? If you want to shorten your loan you can just hand them an additional $36.00 per month towards principal without spending any time or money at all.</p>

<p>They are in business to make money, not to be nice to you.</p>
 
Current loan maturity date: 08/2036





So with the first option, my new maturity date would be 02/2033. My FICO is up from 680 when I first bought it in 07/2006. I was bitter renter from SoCal turned first time buyer. I had a good mortgage broker *gasp* who steered me away from a 5/1 ARM I thought I wanted into a 30 year fixed.





I thought of just making extra principle payments to speed the loan up but decided to instead to save the money for a rainy day, which I expect there to be a lot of soon, at least figuratively.





 
<p>0 Point, </p>

<p> Yes, I'd check the point spread they might want you to pay as well as any little extra "fees" that might pop up. For me, if it cost more than 1 month worth of mortgage, its better to pass and or get agressive with a counter offer. Anyways good luck and don't work too hard.</p>

<p>-bix</p>
 
0point0



Just from a quick glance their is really not a reason to do this. Take the extra money they are going to be charging you per month and just add it to principal payments at the end of the yr or start making biweekly payments. Like it was stated above banks are in the business to make money...not make you happy.
 
<p>If national city mortgage isn't a brokerage, there won't be any YSP on the docs. That's the difference between going directly with the bank and a broker. a broker has to show the charges, the banks don't.</p>

<p>It doesn't sound like a deal, more importantly, the numbers don't quite crunch out.</p>

<p>At $163K financed, a 0.25% difference is only going to be about $30 a month difference in payment. Even accounting for your year of principal payments (roughly $2000), it's still onlyy $45.</p>

<p>Also, check for pre-payment penalties.</p>

<p>Also be aware, it's a refinance, is Georgia a non-recourse state on purchase money loans? I was under the impression large parts of Atlanta were in housing price meltdown.</p>

<p> </p>
 
What's the catch? Perhaps the the refi is no longer a no-recourse loan? I'm no loan expert, so I may not be using the right terminology. If the original loan is an original purchase loan, is the lender limited to just a repo of the property, while, with a refinance, they can come after the borrower's other assets? Somebody in the loan business please rephrase that to be accurate. My point being that the lender may be trying to improve their recovery on a lot more defaulted loans in the future.



Oops, I didn't refresh my screen fast enough. I see my thought is duplicate of the previous post...
 
No idea if Georgia is a no-recourse state or not.





There are some areas definitely being hit hard. I paid 207k with 5% down. A similar size house in my neighborhood that went REO for 160k recently. Two other neighbors selling for 210k and 215k and been on the market 90+ days. Rents in my area for 3 bed 2 baths are going for 800-1200. So worst case scenario I figure my house might lose ~35% or so of its value.





I am on good financial footing and can easily afford the payments baring job loss or major medical issues. I am prepared to ride this downturn/crash landing out. It just looked like a great deal on paper at least. If I could lower my interest rate directly with the lender without going through a full underwriting (the only documentation they wanted was a recent paystub) at no cost, why not?





Thanks for the insight, I think I will keep my existing loan, unless the bank can go down to 6%. I am already planning next July to put the 636/m I pay for my car (2004 4 Runner, 2.9% interest, 4 year loan) towards the principle loan balance on my second mortgage (31k 30 year fixed at 8% currently owned by E*Trade) and get out from underwater faster.





Worst case scenario if sell in 5 years for 130k with 77k down a black hole, its still only 32k more than I would have paid in rent. 32k to me is a small price to pay for keeping my good credit score and and the very valuable lessons I've learned.
 
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