Refinancing can make sense even with a small interest rate decrease of 0.25-0.50% in California due to lower refinancing costs compared to other states. The document provides an example of four refinancing loan options - no cost, no point, low point, and 1 point discount - that vary in interest rate, discount points paid, and total costs for a $300,000 loan amount over 30 years. While a no cost option has a higher interest rate, paying some discount points can benefit long-term homeowners by lowering their interest rate and monthly payment amount.

1. The Loan Help Desk:
Does it Make Sense to Refinance?
“San Diego Creative Investor Association make no warranties regarding vendor products or services offered.”
Thom MacFarlane
Mortgage Banker- Home Loan Broker
NMLS #282091
CA DRE #01210469
Email: thom@sibloans.com
Office: 858-485-0462
Fax: 866-408-1408
www.homeloanwisdom.com
www.thommacfarlane.com
Poster ID on SDCIA:
Is it true that the interest rate needs to be 1% or lower than my current rate
in order to make sense to refinance?
Not true in California where housing costs and mortgage loans are higher than
other parts of the country. In California, loan costs are lower than in other parts
of the country because we use escrow and title companies for the fiduciary
responsibilities as opposed to expensive attorneys. Couple the saved expenses,
the relationship of loan costs to the higher loan amounts in California, and the
advent of several loan options to choose from and it can sometimes make sense
to refinance with only a .25 to .50% decrease in your interest rate.
Typically I will give a borrower 4 Loan Options to choose from:
No Cost Loan – Lender contractually agrees to all hard costs in exchange for
a higher then market interest rate. Because many loan’s hard costs are fixed
regardless of the loan size, this option is generally most rewarding to loan
requests of $250,000 or more.
No Point Loan - The borrower accepts a higher rate of interest in exchange for
not paying the “discount” points. Borrower is only paying the hard costs of title,
escrow, recording, appraisal fee, credit report, processing and other third party
fees.
Low Rate/High Fee (Points) – Essentially you are paying the lender points, a
percentage of the loan amount, to “discount” your interest rate. The greater the
points (fees) you pay, the lower the interest rate. This option allows you to buy
the best rate. (shown as 1/2 pts in the example)
Low Rate/High Fee (Points) – Essentially you are paying the lender points, a
percentage of the loan amount, to “discount” your interest rate. The greater the
points (fees) you pay, the lower the interest rate. This option allows you to buy
the best rate. (shown as 1.25 pts in the example)
Loan Option No Cost No Point Low Point 1 Point Discount
Loan Amount $300000 $300000 $300000 $300000
Interest Rate 4.25% 4.125% 4.00% 3.875%
Discount Points 1.25 rebate none 1/2 point 1.25 points
Loan Term - Years 30 30 30 30
Principal & Interest Payment $1475.82 $1453.95 $1432.25 $1410.71
Pmt Difference vs. No Cost Option n/a $21.87 $43.57 $65.11
Cost of Points or Rebate - $3750 -0- $1500 $3750
Lender, Escrow & Other Fees $3750 $3750 $3750 $3750
Total Costs -0- $3750 $5250 $7500
Sample of Four Loan Options as of 3/3/2015:
$300,000 Loan; $400,000 Value = 75% LTV; Owner Occupied; 30 Year Fixed
I’m frequently an advocate of the “No Cost” but if intended length of ownership is long-term it may benefit you to
pay some points to discount the rate.
There may be some lender requirements in having established new credit and/or having limited derogatory since a negative event, but
the bottom line is that a very large segment of the people who have experienced adversity through a short-sale, foreclosure or even a
bankruptcy - can buy again!