The idea of a “free refinance” or “no lender fees” is nothing new – it’s a common marketing practice used by lenders to attract consumers. No one wants to pay fees, they see no benefit in that, so it’s an easy concept to market to. But, the reality is that no service that requires work to be done, third parties to perform tasks, or governmental agencies to be paid ever comes without costs. It is just about how the consumer is going to pay for those costs.
A lender credit is a dollar amount that is associated with a particular interest rate based on the market at any point in time. That credit, which is a percentage of the loan amount, is utilized to offset costs and fees that are associated with a mortgage loan. Every loan requires some amount of work to be completed – processing, underwriting, credit reports, title reports, recording fees, just to name a few.
Lenders have the ability to price the loan to either give the customer the lower rate available with the standard costs or they can provide a higher rate that gives a credit to offset these fees.
Consumers generally never see the rate or credit options available, they rely on the lender to provide them what is available. As a result, the lender may market a “free” refinance, when it’s really just providing a higher rate and lower costs. This is where transparency, counseling and education helps consumers make the choice that best suits their individual needs.
At Key Mortgage, we offer all of our clients a complimentary thorough review of their short and long-term goals which enables us to provide all available options (which may very well be that no cost refinance). We believe that a consultative approach is how long term relationships are built, which leads to referrals. So next time you see “free refinance” the next question that should be asked is “at what cost?”