In the "old days" (before the government had to get involved in lending), rates, and yield spread worked just like a ruler.  A rate of 5%, might be "even" - meaning the broker charged a 1% origination fee (which they share with their company), and that was what they earned.  A rate of 5.125% would pay them slightly more, a rate of 5.25% paid more (so you didn't charge an origination fee at this rate), 5.375 paid more, and at 5.5% you were earning enough, in most cases to pay part or all of the closing costs on the loan.  It was symmetrical, the two numbers moved together in harmony, you could count on it... in hindsight, it was a simple, beautiful, system that we took for granted.

Now, there is no system.  Today we have rates that look like this

• 4.875% is par (meaning I collect a 1% origination fee, and that's my earnings - so I can't cover someone else's closing cost)

5.000% pays 1% (meaning I can get someone a 5% rate, and not charge an origination fee)

5.125% pays .5% (???  Should pay more than 1 if we are following the old rules!)

5.25% pays .875% (still not as good as the 5% rate)

5.375% pays .875% (why would I quote a 5.375% rate today???)

5.5% pays 1.625% (still not enough to cover closing costs!!!)

EVERYTHING over 5.5% pays LESS than 1.625%

My point with all of this, is not how much your mortgage "guy" is making!  My point is that there are folks out there STILL ADVERTISING a No Cost Refinance... HUGH?!?!?!

It's just not there.  With my "yardstick" analogy - sure.  You would take today's rates, drop your rate down to 5.5% and the broker would make 2.5% and use that to cover all the closing costs... it did not increase the balance of the loan, it was a beautiful thing.  But something happened... actually TWO things happened...

First, the guys on Wall Street (and whatever Street your bank is on) think they might get stuck with more mortgages that don't perform.  We might refinance someone today, and next month, they could lose their job. So they don't want everybody (and their brother) refinancing right now, and they don't want to make it "attractive" for folks to refinance.  If you are a NEW BUYER (not an investor), they would LOVE for you to use this low money to buy... but for some reason, they don't want a refinance boom.

Secondly, in NC the State Legislature decided that "no cost" refinances were not good for the citizens, and they passed LAWS to restrict what we can do.  Seriously?  The LEGISLATURE knows more about what kind of mortgages are GOOD for folks?  NO!  They were trying to keep unscrupulous lenders from setting up shop here... but in making the laws, they inadvertantly cut the legs out on NO COST refinances!

So - how do you refinance in today's environment?  First off, you need some equity in your property.  At least 4%.  For the first time in my mortgage career, I can tell you that in Wake County, you can get a pretty good gauge of what your house is worth based on your tax value.  Look at the difference in your mortgage balances, and the tax value - and that needs to be at least 4%.  (as long as you are under 275K value,if you're over that price range, call me it's more complicated than I can write here)

If your value is less than 275,000, and you live in Wake County, then you can look at FHA financing.  If you only have the 4% equity - you will need to pay closing costs out of pocket.  This means for most folks that instead of making a January and February payment, they are going to take that money and pay the closing costs.  In the rate environment I stated above, we would give them a 5% rate, no origination fee, and they would pay the closing costs... IMHO - this is the best move today!  If your current mortgage is at 6.75% and we drop it to 5% (on $271,500) you save $304 a month.  Is it worth it??  Call me with questions!