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If you plan to stay in the house for more than 5 years, pay 1 to 2 points. Some refinanced multiple times, riding rates all the way down the curve in 1992, 1993 and, more recently, in 1996.If you plan to stay in the house for between 3 and 5 years, it does not make a significant difference whether you pay points or not! No appraisal fees, no title fees and not even any junk fees! Some homeowners used zero-point/zero-fee adjustable loans to refinance and get a new teaser rate every year.The main disadvantage is that you are paying a higher rate than you would be paying if you had paid points and closing costs.If you keep the loan for long enough, you will pay more––since you have higher mortgage payments.Refinancing can reduce your interest rate, your loan term, or even both!Refinance your existing first mortgage or roll your existing first and second mortgages into one to reduce the amount of interest that you are paying and to reduce the time that you have until your house is paid off! The lower the interest rate is, the less that it will cost you to borrow the money.As a general rule, if the interest rate is 1 1/2 points lower than what you are currently paying, it's time to refinance your mortgage!Ask one of our loan consultants to compare your expenses for various loan programs.
To summarize, zero-point/zero-fee loans in many cases are good deals.It is commonly used to compare loan programs from different lenders. Your monthly payments are a function of the interest rate and the length of the loan. Even mortgage bankers and brokers admit it is confusing.The Federal Truth in Lending law requires mortgage companies to disclose the APR when they advertise a rate. The APR is designed to measure the "true cost of a loan." It creates a level playing field for lenders.Since you are being paid "cash" up-front in exchange for a higher rate, it really is your own money that will be paid in the future through higher payments.
Investors who fund these loans hope that you will keep the loans for long enough to recoup their up-front investment.In the scenario where you plan to stay in the house for more than 5 years, and if rates never drop for you to refinance, you could wind up paying more money.