What Happened to Rates with Zero Points???

Wondering why recent mortgage rate quotes rarely
include zero point or “no fee” options? In previous
refinance booms, consumers always had a choice of
selecting from a variety of interest rate and fee
combinations. Typically a consumer can select the
lowest rate with points, increase the rate a bit for zero
points, or increase it even further and pay no closing
fees at all. These options made refinancing simple as
homeowners could do so with NO COST! There was
virtually no reason not to refinance! The homeowner
could always pay off the loan early and refinance if rates
dropped further.

The trouble with zero points and/or no cost
refinances from a bank’s perspective is that these loans
DO tend to get paid off very early. The bank ends up
losing money when the loan is not held long enough to
collect enough interest to recapture the up front costs.

With current rates at record setting lows and banks
in their worst financial position since the Great
Depression, most simply cannot afford the losses
associated with loans being paid off early.

The result is lenders are not offering attractive rates
for zero point loans and no cost options are virtually nonexistent.
The banks are now betting that if consumers
pay points and closing fees to get historically low fixed
rates, the odds of the loan being paid off early through
another refinance are slim. End result is a win/win for the
bank and consumer. The bank now has a long term
profitable loan on the books, and the consumer gets a
historically low rate!

~ Courtesy of Wendy Charles, CMPS, LoanCentral LLC