MortgagesUndressed

Some that speak out, even some of the Feds, talk about rebates as if they were some deep dark sinful practice. Rebates are not necessarily bad.

The purpose of this article is to inform you. Understanding rebates will make the loan process make a lot more sense. It can also make you wise. Wise is good.

To keep it simple, I refer to all types of rebates as a rebate. There are other fancy names. You know what a rebate is, for this article, they are all rebates irregardless of their name. Both banks and mortgage companies have them in one or more forms.

On almost all loan programs your loan officer can select from 6 to 10 different rates for you. Usually by mid morning each lender announces their rates. In looking at a rate sheet for last week I find one National Bank quoted the lowest rate available at 6.125% for a 30 year fixed mortgage. That same bank would lock your rate at 6.75% for the same program.

Why two rates for the same program? Actually they offer six choices on this day. At 6.125% there are fees just to get that rate. At 6.75 % there is a rebate. As the rate goes higher the rebates go higher.

The benefits to you of the higher fee - higher rebate option, can be in what the loan costs you at closing. This is where the no cost loan comes from. Assume you will take 6.75% as your interest rate. If you were borrowing $300,000 on this day the loan officer would have $5667.00 towards your costs. I have seen other banks that quote a rate with rebates that would pay as much as $9,000.00 in rebate for a $300,000 loan.

This concept shoots down what I have heard from many people: “You shouldn’t refinance unless you save X% in interest. Baloney. If you are willing to go through the effort of a refinance, and can do it with enough of a rebate to have no fees and cut your payment down, do it. Saving 1/4 of a percent interest on this amount would cut the payment by $49.05 per month. (Of course it re-sets the 30 year time all over.)

The rebate can however lead to a FAT FEE LENDERS DELIGHT. If he made a 2 per cent rebate and took it for himself he adds $6,000 to his income pot. The way you best avoid this event is to use a lender that is referred by your real estate agent. If the loan officer gets greedy and is found out by the real estate agent that referred you, the loan officer stands to lose all future business from the agent. It is your best safeguard, second to being educated.

We will talk about this subject more in the future.

Larry Cragun