Let me make sure I understand. You do not want to increase your principal and are willing to take a higher interest rate to get a zero points/fees loan for this?
If my understanding is correct, what you would need to do is calculate the payment of the both the higher interest rate and the lower interest rate. The difference between these two is the difference in montly payment amounts for each rate.
Take this difference and divide it into the $5k closing costs. This should give you about how many months it would take for the lower rate to cover the closing costs.
Banks and lenders determine the loan pricing based on treasury bonds and other indicators. They make up the points/fees structure of their financial products based on the performance of these financial indicators.
Talk with a lender to help determine what pricing makes sense for you. Get a breakdown of multiple pricing scenarios to help you determine what makes sense over the long haul.
Hope this helps,
Joe
Source: http://www.zillow.com/advice-thread/How-does-no-cost-refinance-work/464140/
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Refinancing can certainly be very effective in lowering your monthly mortgage payments, getting a better interest rate or extending your loan term. However, not every refinance makes sense. If interest rates are considerably lower than your original interest rate, like 2% lower, then it can be a good option. It is best to run the numbers and find out if the potential savings indicate that refinancing is right for you.
ReplyDeleteRegards,
Chris from 123homeloans.co.za