How to Streamline
How can American Elite Mortgage offer a
No Closing Cost Loan on your next refinance?
The loan is called a "Streamline Refinance". Our current streamline rate is
6.25%. *
What does this mean to you?
If your current mortgage interest rate is greater than
6.25%* and you have good credit you could reduce the interest rate on your home without
having to pay closing costs. A FREE refinance!
WHAT IS A STREAMLINE?
The word "Streamline" is used to describe the type of loan documentation used in order to process your approval. Typical forms of loan documentation would include
such items as Pay-stubs, Bank Statements and W-2's, for example. Often times a lender will not require these items order to obtain a new loan. The Streamline process
is often used by companies as a client retention method to easily accommodate/facilitate a current client's refinance. The process helps lenders lose valuable
business when rates go down and people refinance. The Streamline simply suggests less hassle by reducing the loan requirements which expedites or "streamlines" the
process.
WHAT IS A NO COST LOAN?
There seem to be several versions of a no cost loan depending on who you are talking to. A
"NO COST" could have several meanings, so here are a few
examples:
"NO OUT OF POCKET COSTS" suggesting that you will not have to pay costs by using monies from your savings, checking, etc. This does no suggest free,
rather the closing costs would be added to the balance of your loan. Many people assume that just because you are not asked to bring money in to close your loan,
closing costs are not charged, but the cost is added in the new loan amount, hence you pay closing costs by lending them to yourself in the new loan.
"NO LENDER COSTS" sometimes advertised would suggest that there will be no costs charged by the lender, but not necessarily by the other entities
involved in the loan process. Those closing costs are usually added to the new loan amount again, to avoid the need to bring in monies to close the loan. Examples
of other costs which are not charged by the lender would be the cost of Title Insurance, Appraisal, Credit Report, Underwriting/Document/Processing Fees, etc. These
Fees would either be costs paid in advance by you the borrower, or added to the backof your loan onto your new principal loan amount.
A true
"NO COST" loan would be a refinance that did not have you pay closing costs. Any third party fees or closing costs would not be charged to you
or added to your loan amount.
WHAT COSTS ARE TYPICALLY ASSOCIATED WITH A LOAN?
On a typical loan, there are usually 8 to 9 different entities that play a role in the loan process. Each charges a fee. Some of the fees are fixed and others vary
depending on the size of the loan. The following is a rough estimate of those costs:
APPRAISER
(can use your own if you have a copy) |
$300 - $350
(depends on appraiser) |
CREDIT* |
$18 - $55
(depends on type of loan) |
PROCESSOR
(used to process / track loan) |
$300 - $495
(depends on processor / type of loan) |
LOAN ORIGINATION*
(1% of the new loan amount) |
$1500 - 4000
(depends on size of loan) |
TITLE FEES
(required insurance on a mortgage loan) |
$1000 - $2000
(depends on loan size / age) |
UNDERWRITING*
(required process to obtain loan) |
$475 - $600
(depends on investor) |
RECORDING / MISC |
$80 - $200
(depending on # of liens) |
STATE / GOV TAXES |
$100 - $200 |
HOW CAN THE LOAN GET PAID FOR IF I AM NOT BEING CHARGED?
The easiest way to explain this would be to talk about "Discount Points". Discount points are familiar to those of us who have paid "extra" closing costs on a loan
for the specific purpose of obtaining a lower interest rate. Discount Points are monies typically paid in excess of typical closing costs. A Discount Point is the
equivalent of 1% of the loan amount. Assuming that a borrower wanted a lower interest rate than the going rate or "PAR" rate being offered, the borrower could pay
Discount to get a lower interest rate/payment, and over the life of the loan pay less interest. Discount Points are then really just interest being paid in advance
in exchange for less interest being paid back over the life of the loan.
INTEREST RATE VERSUS FEES
The example below is our target rate for streamlines. The highlighted bar suggests that the "PAR" rate is approximately 5.5% on a conforming loan and 5.75% on a
Jumbo loan. "PAR", just like in golf, is the current rate being offered by Lenders or Banks in the market place. A borrower would pay typical closing costs as
referenced above to get the "PAR" rate. By paying 1.00 Discount Point (higher closing costs), a borrower could buy down the interest rate from 5.5% to 5.25% on a
conforming loan. This would reduce the monthly payment over the next 30 years, but would increase the cost of the loan accordingly. (Ex; $180,000 loan amount 1.00
points for 30-day lock = $1800)
30 Year Fixed
|
30 Year Fixed Jumbo
|
Rate |
12-day |
21-day |
30-day |
Rate |
12 day |
21 days |
30 day |
5.25% |
.50 |
.75 |
1.00 |
5.25% |
1.25 |
1.375 |
1.75 |
5.5% |
-.75 |
-.5 |
-.25 |
5.5% |
.25 |
.75 |
1.00 |
5.75% |
-.15 |
-1.25 |
-1.00 |
5.75% |
-.75 |
-.25 |
0.00 |
6.0% |
-2.25 |
-2.00 |
-1.75 |
6.0% |
-1.5 |
-1.25 |
-1.00 |
6.25% |
-3.25 |
-3.00 |
-2.75 |
6.25% |
-2.00 |
-2.00 |
-1.5 |
* RATES VARY ON A DAILY BASIS
**LOANS SMALLER THAN $120,000 AND LARGER THAN $650,000 CALL FOR QUOTE
Based on a $180,000 loan amount, typical closing costs would add up to approximately $4500.00 if you had to pay everyone involved to refinance your loan.
To avoid paying closing costs, a
"FREE" loan would have you take a higher than "PAR" interest rate. The lender would pay a "Rebate" of monies
called "Premium Points" at the closing. Premium Points are the opposite of Discount Points so instead of paying more money to get a lower rate, you pay less
or no money when taking a higher interest rate than the rate being offered by banks or the "PAR" rate.
Our example suggests a streamline rate of
6.25%*. At this rate the lender will be rebated monies for selling a loan at a rate that is higher than PAR. On a 30-day
lock, that interest rate rebates -2.75(bottom line on graph), which is 2.75% of $180,000. That's $4,950.00.
Based on this scenario, there is enough money in rebate to cover all closing costs on a refinance. The rebate, also known as "Yield Spread" is used to pay all of the
costs associated with the refinance. The loan is "FREE" to the client and no costs or fees are added to your loan. Your new loan amount would be the same as the old
amount (assuming you don't pull out equity or skip interest payments), and the new monthly payment would be lower for the next 30 years.
CAN I GET A LOWER RATE?
Yes. You would just have to pay the proportional amount of closing costs depending on the rate. This would be a typical refinance in which a lender would charge you
according to the rate of interest you wanted. The fees would simply be added onto your loan balance.
WHY REFINANCE?
The best way to justify a refinance is to divide the Total Cost of the refinance by the Monthly Savings on the loan. This will determine the Number of Months it will
take to repay the cost of the refinance with the monthly savings. The justification is then simply whether or not you will have the loan long enough to be able to
save the amount it cost you to do the refinance in the first place.
(Total Cost ÷ Monthly Savings = Number of Months needed to keep New Loan to justify paying Closing Costs)
People refinance for many reasons, but the key is to save money. This formula should help in determining whether or not it is justified to pay closing costs.
WHO SHOULD DO THIS LOAN?
ANYONE WITH AN INTEREST RATE IN EXCESS OF 6.25%*.
PLEASE FEEL FREE TO CALL ME @ 801-560-8540 OR 801-466-5055.
THANKS!
MAXIMILIAN VON APP
