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The Truth about the Countrywide "No Cost Refi"

By
Mortgage and Lending with Franklin Loan Center

11/29/2007

 Take it from me, there is a cost.  I laugh everytime I see there advertisement.  If you have eyes and have watched any channel within the last 6 months chances are you've seen it too.  The nice looking man in a polo shirt and jacket with the preppy hair cut are the perfect example of if it sounds too good to be true it probably is.  I'm not here to rip on Countrywide.  They have put millions of people into homes and provide a very necessary service.  I just want realtors and real estate professionals, who i'm sure are asked questions about this almost everyday, to understand how the darn thing works.  The easiest way to explain it is with an example.  Let's take for instance that someone qualifies for a new loan at a rate of 6.5% at countrywide under normal financing where they are paying closing costs and at zero discount points.  Closing costs include Title, Escrow, Appraisal, Recording, Processing, Tax assessment, Flood Certificcation, Courier fees, Notary Fee, and Credit Check.  As well as any other miscellaneous fee not covered here.  The average refi for a loan size of say $250,000 should run between $2,000 up to $3,000 on 3rd party fees.  This range doesn't include discount points.  1 point is equal to 1 percent of the loan amount, so for $250,000 1 point = $2,500.  The advertisement states that all of these costs are covered by Countrywide.  The consumer doesn't pay any of these fees.  We'll there is no free lunch.  If the same person wanted to refi his loan for $250,000 and wanted the "No Cost Option" their new rate would be in the neighborhood of 7% - %7.250.  On a loan amount this would change their payment from $1,580.17 ($250,000 at %6.5 fully amortized over 30 years) to $1643.30 ($247,000 at 7% fully amortized over 30 years).  The difference between the $250,000 and $247,000 is the $3,000 in closing costs that Countrywide covers.  Do the math, that's a difference of $63.  If you stay in a loan for longer than 4 years then it will cost you more to do the no cost refi then to just pay the fees through the loan.  Do the math if you stayed in the loan for 30 years. It would cost you $22,680 more over the life of the loan.  Subtract the original $3,000 that they would be "saving" you and the net cost to you for the "No Cost Refi" is $19,680.  The No Cost Refi is for a higher rate than what you'd qualify for under a normal refi.  There is a cost, a significant one if it isn't explained properly.  To be fair and honest to Countrywide, they aren't doing a lot of business because customers actually end up doing the no cost refi. They do more business because it makes the phone ring.  To Joe Homebuyer it sounds like a great deal, but when they find out the rate they usually balk at it, but they like the guy/girl they spoke to on the phone and usually end up getting a couple options presented to them along with the No Cost Refi and those always sound better and they move forward with that option instead of the No Cost Refi.  I worked for Countrywide for over a year and never once did a borrower of mine do the No Cost Refi because I properly explained it to them.  So don't be fooled.  I hope this has helped.

Gail Gladstone
Gladstone Group & Long Island Business Brokerage - Huntington, NY
Brokering Success

Thank you for putting this into a description I can fully understand.  With your permission, I will share this.

Gail Gladstone, Long Island Realtor

Nov 29, 2007 05:20 AM
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Andrew... I agree and I am with you on this. Again, not to knock Countrywide.....  but they are so desperate that they will ...or at least did at one point and so did a few other large lenders, waive title insurance if you refinanced less than a yr or were a past client less than a year. The larger lenders can do this...

Other than that, you are right on the money about everything else.  And we need to educate the consumer on this.

jeff belonger
Nov 29, 2007 05:21 AM
Chuck Christensen
Your Financial Coach - Bellingham, WA
So, my question of the hour is...why is the FCC letting them run this commercial even though false advertising and misleading are against the law? Why are these people getting paid to not do their job...bet we all wish we could just get paid for doing nothing...and why are the banks still advertising "No Fee Loans" and not giving a disclosure to state that thedy are paying the fees by over charging the customer and the customers don't even know they got screwed.
Nov 29, 2007 05:24 AM
Anonymous
S.H.
Chuck, It's not false advertising, there are still no costs due to the refinancing of the loan.  You are just stuck with a higher rate which means higher payments.  Different types of loans have different rates (lower rate for 15-yr, higher rate for jumbo, etc.)
Nov 29, 2007 05:37 AM
#4
Tony and Suzanne Marriott, Associate Brokers
Serving the Greater Phoenix and Scottsdale Metropolitan Area - Scottsdale, AZ
Coldwell Banker Realty

False Advertising of any kind is a hot topic for me right now.  It's incredible and appalling how some agents that are clueless when it comes to Short Sales boast of hundreds of transactions and high closing ratios - neither metric being supported by the MLS.

Aug 28, 2010 03:36 AM