Sometimes we focus on saving in small ways and forget to question the really big expenses. With refinance rates at crazy low numbers, this might be the time for you to reduce one of your biggest expenses–your mortgage payment.
At the end of last year we refinanced our mortgage from a rate of 3.625% to 2.875%. It cost exactly $254 and took four hours. Our total savings is $7,000 in interest. And that number is much lower than it could be. We earned just $1,750/hour for our four hours because we plan on paying off our 15-year mortgage in five years. That means we enjoy the lower rate for less time. If we were paying off our mortgage over 15 years, our total interest savings would have been $21,000, or $5,250/hour for those four hours! I can’t think of anything else we could do that would even get close to being that profitable.
Let’s look at this another way. Imagine that your mortgage company calls up and says:
“Hey! We know these are tough financial times and we want to give back to our customers. We’ve made mountains of money over the years and to show our appreciation we’re going to send you a check for $117 every month for as long as you have a mortgage with us. We’ll start next month and send a check every month for the next 6 or 10 or 15 years!”
“But we know some of you are really busy. As an alternative gift, we’ll offer to do four hours of housework instead. You can watch a few episodes of your favorite show, go out with friends, or just take a nap. We’ll make dinner and watch the kids and run to the store. Just make sure you’re back in four hours, because it’s all up to you after that.”
“Let us know which you prefer. If you don’t call in the next two weeks, we’ll assume you’re the busy sort and just give you the four hours.”
Does that sound crazy? Your actual numbers will be a little different, but essentially that’s the real choice. $117 a month for every month remaining on your mortgage or four hours of extra free time. Which will it be?
I hope you don’t think about it for too long.
The amazing thing is that we didn’t even have a high rate to begin with. 3.625% was already incredibly low! There have only been a few years in the history of U.S. home mortgage loans when rates ever dipped lower than that. Some of you are paying 4.375%, and your savings would be double ours, a “monthly check” of $234. Some of you are at 5.875% and your savings could be four times as much as ours! Your “monthly check” might be $468!
A Tale of Two Mortgages
Let’s dig right into the numbers first. This is what our mortgage looked like before and after our re-fi.
| Loan Before Re-finance | Loan after Re-finance | |
| Lender | Quicken Loans (aka Rocket Mortgage) | Owning.com (Owning Corporation) |
| APR | 3.625% | 2.875% |
| Balance | $320,000 | $320,000 |
| Remaining Loan Term | 13 years | 15 years |
| Monthly Principal + Interest | $2,687 | $2,191 |
| Total Remaining PMI | $705 | $0 |
| Total Interest Paid (5 years) | $30,357 | $23,933 |
| Total Interest Paid (13 years) | $81,775 | $63,895 |
| Total Interest Paid (15 years) | $95,317 | $74,321 |
I don’t include anything about our escrow account, because property taxes and homeowner’s insurance are the same no matter who the lender is. This table includes all the numbers that changed.
How Much It Cost
The total cost to get from the old loan to the new loan was $254.
- $50 to Quicken Loans to have them issue a final payoff statement
- $184 to Quicken Loans to record our payoff documents after the re-fi
- $20 to our bank to wire the cash-to-close money to the closing agent
- $0 to Owning Corporation, the new lender
Let me expand on item 4. Owning Corporation is one of the few lenders I’ve found that offers a true no-cost mortgage re-fi. I was very impressed.
(Edited to add the following in October 2020:
As of October 21, 2020, Owning Corporation is no longer offering the same fee-free re-finance loan that we used. In the loans they currently offer, they no longer appear to pay everything for the borrower. How can I tell? Because the Interest Rate and APR are no longer the same.
That does not mean that a re-fi isn’t a good idea. In fact, if we could re-finance again with Owning today, we would do it. The interest rate today is 1.875% and the APR is 2.056%. While the difference reflects costs and/or fees rolled into the loan, in calculating the actual cost as a borrower, the only rate that matters is APR. Our re-fi in 2019 brought us from an APR of 3.625% to 2.875%. That was a decrease of 0.75%. Re-financing now from 2.875% to 2.056% would be a decrease of 0.819%. So even though there are some fees rolled into the re-fi, we would save a huge amount, even more than we did during the re-fi a year ago, by doing another re-fi. Another four hours and another payday of over $1000/hr in savings.)
But a lot of “no-cost” re-fis are actually not great deals. To explain, we need to examine the two ways a re-fi can cost you money.
First, there are usually out-of-pocket costs that you have as part of cash-to-close, the amount you pay when you finalize the re-fi.
Second, there are often charges that are rolled into the new loan principal. With rolled-in costs, you have fewer costs at closing, but because you still pay all those costs, plus interest, for the entire remainder of the loan, you pay more in total than if you pay them up front at closing. Many no-cost re-fis just roll all the costs into the loan so that there aren’t any costs at closing. Instead, you pay those costs for years and years during the life of your loan, with interest.
Cash-to-close
Now, we didn’t just bring $254 to the closing. Because we pay one-twelfth of our annual property taxes and homeowner’s insurance into an escrow account with each mortgage payment, we had to fill up the new escrow account at Owning with $3,960 cash-to-close. Of course, we got a refund from Quicken Loans for just about the same amount, but we had to wait two weeks to get it. The one caveat to a deal like this is that you need to be able to carry the escrow fill-up costs until your old lender sends you a check for everything left in your old escrow account.
But that $3,960 was entirely to fund the escrow account. Owning charged no loan origination fee and paid many of the fees that the property owner usually pays, including the appraisal fee, credit report fees, closing fees, signing fees, notary fees, and title insurance fees. This is pretty rare. I asked Quicken Loans if they could match the Owning re-fi terms. Quicken met the rate, but wanted about $5,000 cash-to-close, even without any escrow fill-up. I was plenty suspicious that there were some fees hiding somewhere in our Owning re-fi, but I went over both the pre-closing estimates and the final closing papers painstakingly and found our total out-of-pocket, besides the escrow, was really just $254.
Rolled-In Costs
Rolled-in costs are what make most re-fis advertised as no-closing-cost loans into really bad deals. It’s easy for a lender to move costs from the cash-to-close bucket to the rolled-in costs bucket. Because of that, almost any loan can be structured to have no out-of-pocket closing costs. The lender just rolls all the transaction costs and fees into the loan amount and you pay them over time, plus interest, for the rest of your loan. You can tell that costs have been rolled into the principal because the interest rate is lower than the APR. Savvy mortgage shoppers know that when there’s a difference between the interest rate and the APR, the interest rate means exactly bupkis.
You can see this in this unsolicited ad we got from CashCall Mortgage recently. It highlights a great interest rate of 2.875%, and includes the 3.076% APR in parentheses like it’s an unimportant detail. In truth, the APR is the only rate that matters. That’s the number you use to compare mortgages because it’s what you actually pay each month when you take into account all the rolled-in costs.
In contrast, see the rate from April 4, 2020 from Owning.com. The Rate and APR are both 2.75%. Since the numbers are the same, you can be confident that you’re only paying interest on the principal of your loan, not a bunch of extra costs rolled into the transaction.
What Happened in the Four Hours
1.5 hours – Mike vets the deal to make sure the company is legitimate and the no-cost re-fi is for real.
0.8 hours – Mike exchanges documents and communications with Owning. It was pretty easy because we already have all the relevant documents scanned and saved. This might take a little longer for people who have to look them up.
0.2 hours – Mike reschedules our closing because our new baby makes an entrance (!) the same day Owning had originally scheduled the notary.
1.0 hours – Stephanie and Mike, back from the hospital, sign papers with the rescheduled notary who comes to the house.
If you spend a little less time vetting the company and a little more time preparing and sending documents, you’ll likely come out just about the same. Ron Piri and Casey Love were the people we worked with at Owning, and in addition to keeping it inexpensive, they made this one of the smoothest real estate transactions I’ve ever been involved in, personally or professionally.
A Dodged Bullet (and a shout out for ridiculously good customer service)
Actually, if I include absolutely everything, there was another hour in there, but it’s unlikely to apply to anyone else. Twelve days after I first talked with Owning, Ron and Casey had everything set up and ready to close. Still suspicious that some things are too good to be true, I did a final double-check of online reviews. I found a new review from a customer who mentioned that after her re-fi was complete, Owning sold her loan to Specialized Loan Services (SLS), who took over servicing.
A big red flag went up in my head. It’s common for lenders to quickly sell the loan on to someone else; many are primarily loan originators, focusing on transactions, not on holding and servicing loans. I’m ok with that, but not with SLS. Without details, I’ll just say that I’ve had the displeasure of working with SLS a handful of times for clients, and I had sworn to never voluntarily do business with them myself. They must work fine for some people because they’re still in business, but I called Casey at Owning and asked him if it was standard practice to resell to SLS. He confirmed it was. I regretfully told him I was pulling out of the re-fi.
As we finished the call, Casey mentioned that they were working on getting a new secondary purchaser soon. He told me he’d call me when the new contract got worked out. I never expected to hear from him again.
To my complete surprise, a few weeks later, Casey contacted me and said they would soon be able to resell to a new secondary purchaser, Dovenmuehle Mortgage, Inc, and could guarantee my loan went to Dovenmuehle instead of SLS. The interest rate had already gone up nearly half a point, but Owning would extend my rate lock for several weeks until they had the new purchaser ready. Online reviews for Dovenmuehle weren’t stellar, but I had no personal bad experience with them and many of the bad reviews seemed to be related to loan modifications for borrowers in default. I talked to Stephanie and then told Casey we’d go for it. Four weeks later, we signed on the new loan, at our original much-lower APR.
I want to highlight two pieces of this story. First, I think that knowing your loan will eventually end up at SLS or Dovenmuehle is helpful to a prospective customer. Second, that sort of customer service is pure gold. The fact that Casey actually called me back several weeks after I cancelled the re-fi with news of a new secondary purchaser, and the fact that Owning extended the rate lock so we could keep our lower rate even though it may have actually cost them money, that just doesn’t happen much. If either Casey or Ron ever read this, well done, sirs.
How Do You Qualify For a Loan Like This?
Owning’s mortgage disclosure page gives some guidelines for what sort of assumptions they make in calculating the advertised rate. We matched some, but not all of those assumptions.
| Loan Assumptions | Our Loan | |
| Loan Amount | $300,000 | $320,000 |
| Property Type | single family residence in California | single family residence (with above-garage apartment) in California |
| FICO Credit Score | > 740 | 804 |
| Loan-to-Value (LTV) ratio | 50% LTV with no subordinate debt | 77% LTV with no subordinate debt |
How Do I Find a Loan Like This?
Well, if you live in California, you can go to owning.com/index-refi and get a 2.75% APR loan, as of today. That’s the one lender we’ve had recent personal experience with. Owning Corporation isn’t paying for this endorsement; they don’t even know it’s coming. Here at Six Figures Under we just share our financial lives as they happen and hope they might be helpful for you. I haven’t personally vetted any other no-cost re-fi lenders, but I’ve heard that they exist and that they do business in many states. You should have some idea now of what to look for and how to compare prospective loans.
And if you can’t find a no-cost re-fi, it might still make great sense to re-fi with a traditional lender. Rates are as low as they’ve been in the last hundred years. If you’re currently at 4% or 5% APR, or higher, there are likely savings to be had. Consult an amortization calculator to see how much you could save, even if you have to pay the loan costs yourself.
And if that increases your time by a few hours, there’s still not much you can do that will earn you as much money as lowering your mortgage interest rate.
Is Now The Time?
We know the current COVID-19 outbreak makes this a difficult time for a lot of people. We’re surrounded by worries about health, work, and the general economy. Is it really the time to look for a new mortgage? Well, maybe. If your situation lets you take advantage of a low-rate mortgage re-finance, rates are incredibly low and you are likely to save money both now and for years to come. You can at least get started, choose a company, and apply.
It might seem like this would be the time to put off big financial decisions. Thankfully, a re-fi is actually a pretty small financial decision. You already have the house and the loan (those were big financial decisions) so all you’re doing with a refi is making your payment smaller. There’s time yet to figure out how to meet with a notary or closing agent for final document signing.
Finally, if you know of any good re-fi lenders, in or out of California, or if you know of any lenders you wouldn’t recommend, feel free to share with everyone in the comments below. We only have our personal experience and it’s only in one state. We’d love recommendations for others who come looking for information on re-fi loans in other places.
Thanks. And be safe out there.
Hi Mike – I had a great re-fi experience with owning.com as well, and the “no-cost” truly was almost no-cost (they just didn’t cover the tiny bit I had to pay to close out the old loan). Now rates are even lower, but I cannot refi with owning.com again until a year is up. I cannot find any lender out there with rates as good as owning.com; best I can find is about .25 higher. Any ideas about another lender with comparable rates?
Dan,
I’m not keeping up with rates right now, but when we were looking, my experience was about the same as yours–Owning seemed to be about .25% lower than anyone else.
I’m in the process of refinancing with Owning.com @ 2.50% for a 30yr. conforming high-balance loan, though was only offered 0.50 discount points (still good) since my primary residence does not meet or exceed the 50% Loan-to Value (LTV) as required by their loan disclosures to obtain 0 points, or the anticipated $254 cash to close. For me, since my loan amount would be $635,00.00, my points will cost $3,1750.00.
While I understand your loan is not high balance, and only for 15 years, regardless of your interest rate, you didn’t meet the loan-to-value eligibility requirements either (you stated it was 77%). So, may I ask how you were able to refinance without paying for points? I was told it’s otherwise impossible yet my credit score is 820 and I have a six figure income with literally no other debt beside my home. Thank you!
Hi Stewart. I can’t give you any special insight into how any particular loan offer is put together. It’s been a year since our re-fi and I wouldn’t be surprised if internal policies had changed or even if underwriting just ran the risks a little differently, and came up with a different offer. I didn’t do any particularly hard bargaining a year ago at our re-fi, but it was a year ago.
As far as points go, though, most lenders will quite happily allow a customer to pay zero points for a higher rate, or more points for a lower rate. Points are just prepaid interest, buying down the rate, so it’s a wash for the lender. There could be some difference in how the resale market treats the rates, but I’m not a loan buyer, so I couldn’t guess what.
I hope you find a great deal, whatever specifics you end up with.
If interest rate/12 = r, # of yrs on loan = n and principal = P
then monthly payment = P * N/D
where N = r*(1+r)^n
D = ((1+r)^n – 1)
I have a question for the case where you mention that closing costs are rolled into monthly payments as APR will be higher than interest rate when this happens.
In this case does the APR need to be plugged into the above formula to get the correct monthly payment ?
Owning is currently (as of Dec 30, 2020) advertising interest rate=1.75% and APR=1.93% for 15-yr fixed.
But the monthly payment they came up with for given principal P, matched with using 1.75%/12 in the above formula, not using 1.93%/12.
This is confusing to me as you said, “..when there’s a difference between the interest rate and the APR, the interest rate means exactly bupkis”
Hi Mike. We’re working on a re-fi with Owning. I had never heard of them until a friend recommended them a few days ago. They’ve offered a great rate with 1-pt closing costs which I’m okay with. I’ve been online looking for reviews to make sure it’s a reputable company and I came across your article which is very helpful. I wanted to ask about your experience with SLS. What was it that you didn’t like? I’m not actually sure what to expect (good or bad) from a lender after the loan is sold on. In our experience with our current lender, they really haven’t done anything much except hang out in the background, take our payment every month and send us statements. Any tips on what we should be looking for? Thank you! Deirdre
Deirdre,
I’ve never had my own loan serviced by SLS, but I’ve worked with clients using a lot of lenders, and SLS has gotten the highest rate of complaints. It’s not one thing–it’s a bunch of things that seem to have gone wrong: checks lost in the mail, extra payments misapplied, failing to appropriately pay tax and insurance from escrow funds, unhelpful customer service, and loan modifications mishandled (though in fairness, during the housing crash, every lender seemed to mess up the TARP-funded modifications). In the end, I just got the feeling that the systems at SLS were poorly integrated and the people were overwhelemed or incompetent.
I want a servicer who just accepts payments online and lets me check my account without any fuss. I absolutely don’t want anything that potentially requires hours of phone calls to fix problems. Does SLS work fine for a lot of people? I hope so. I just heard enough bad anecdotes that I don’t want to test them out myself.
Hi Mike,
I just looked at owning.com interest rate today and interest and APR are not the same. For 15 yr refi is at 1.75% Rate and 1.998 APR.
You’re right Debbie. I just saw the same. It looks like Owning has changed some of their terms since our refinance a year ago. I’d still be excited about a 1.998 APR, even if there are some fees rolled into the loan, but it’s no longer a true no-cost refi. It’s now what’s traditionally touted by lenders as a “no-cost re-fi” which simply means “no cost to the borrower up front, because we’ll be collecting along the way.”
I’ll make a note in the post itself describing the changes I see. Thanks for checking in.
What do you mean by “no cost to the borrower up front, because we’ll be collecting along the way.” My understanding is that the only fees you would be paying are the ones you might elect to impound. What other fees would you be paying along the way? This seems vague and could go south quickly.
I didn’t mean anything as nefarious as all that. The way a lot of lenders get to a “no-cost” re-fi is by rolling the normal costs into the principal so that you actually end up paying them, but you pay them little by little for 15 years instead of paying them up front at the start of the loan. That’s what “collecting along the way” was intended to mean. There shouldn’t be any surprises. Under federal law, all those rolled-in costs must appear on the closing settlement sheet and any interest charged on them must be included when calculating loan APR.
Hi. Any idea if they do 2nd home loans?
That’s a good question, Debbie. The mortgage disclosure page clearly prohibits rental units, but doesn’t mention second homes. You’d have to contact the lender to inquire.
Hi Mike,
Since everything is online, did you sent documents to your agent through email? Is it secure?
Hi Menchie,
All the documents are sent through a secure online portal. You just log in and upload them from your computer. Plain email is never a secure option.
Hey Mike I did call Owning for a quote on a Calif conventional 50% LTV refinance on my 400k property, they advised that they could not accommodate me due to my principal was too low, they needed 325k loan balance…
Oh that’s disappointing. The Owning diclosure document still gives $100,000 as the minimum loan (https://owning.com/disclosure.html) but they must have some internal metrics, probably constantly moving to meet the secondary market demands. You could always try calling again and seeing if you get a different answer from someone else, or run the numbers on a refi with a lower rate and traditional cost structure which, depending on your current rate, might still save you a lot of money. Good luck!
So, I just refinanced with Owning — still within 3 day period to cancel. Some things have changed since April. They generally demand you have 400K to refinance to get the advertised rate. Then you at the very least pay a point to get that rate. So, no more no-cost refi unless you take a higher rate.
I’m curious, as I’ve been debating should I have taken the 2.625 at no cost or 2.375 at 1 point (which cost ~3K which is near standard closing). Not sure how long I will be in this home, but likely at least a few more years. As background, I’m currently at 2.875, 7 year ARM, which matures in 2 years (…so, thought I’d take advantage of current rates to lock in something lower and fixed).
Ahhh, doubts!
Hi, I’ve been doing research online about them, because well…their no fee refinance just sounds too good to be true. I looked at their BBB rating, Yelp and Zillow reviews, and your article was probably the most detailed and helpful. I am leaning toward to going with them, just wanted to know how did you they were legit and decide to go with Owning.com?
Hey Scott,
It sounds like you’re already doing everything I did to make sure the Owning.com ads that seem too good to be true aren’t hiding something sketchy. After I checked all the available third-party sources, I called directly and grilled the loan origination agent about all the things I thought could go wrong, and with years of real estate law, there were a lot of things. Everything seemed legitimate.
For me, though, the real evidence was the transaction itself. I carefully watched all the paperwork, actually read through the loan documents when the escrow agent came to the house for signing, and I couldn’t find anything that left me with either a legal or financial risk, other than the known risk of promising to pay a certain amount back at a certain rate over a certain term.
Because the loan was almost immediately transferred to Dovenmuehle for servicing, that was really the entire substance of my transaction with Owning. They provided the funds to refinance the mortgage (including the transaction costs to make the process free for us) and set a very low rate for the new loan. We promised to repay the new loan at the terms they provided, and after all that was done, we said goodbye and have worked with our loan servicer for the actual repayment.
This looks so awesome. I’m really interested in doing it. Have you heard of a program like that for refinancing outside of CA? I’m in NC.
Tamara,
I don’t know of any program like that in NC. That doesn’t mean there isn’t one, just that my quick Google search didn’t turn it up. It’s a big enough savings it would certainly be worth taking some time and looking around for lenders in your area.
Even if it ends up that no lenders are doing true no-cost re-finance loans, I suggest you take a little time to see how much you might save with a traditional re-fi. Mortgage rates keep reaching new record lows. They’re lower than when we did our re-finance, but I don’t think there’s much room for them to go down further. If you’re paying a higher rate there’s a very good chance you’ll save quite a lot every month even after you take closing costs into account. Good luck on your research!
Thanks for taking the time to respond, Mike! I appreciate it.
We already did refinance in Sept to a 2.875 interest rate on a 15-year mortgage–so it’s hard to beat that. Owning listed yesterday a new drop to 2.375 interest rate on a 15-year mortgage which would make sense as a no-cost re-fi….if we were in CA.
Anyways, I know we already have a great deal right now, but it’s always worth paying attention to the refinance market just in case! I will keep looking.
We are actually considering Owning over Quicken Loans, but selling my loan to another company gives me a concern.
How is Dovenmuehle? Are you getting a good experience?
Hi Gozie,
We haven’t had any issues with Dovenmuehle. We do all of our transactions online, so I can’t give any insight into the process for people who might be mailing in checks, but we set up online, asked for electronic document delivery, and it’s worked without a hitch since then. We do still ocassionally get a paper letter in the mail, which is unnecessary, but not really a problem. If we had to decide again, we’d re-fi with Owning and be fine with Dovenmuehle. I actually tried to do it again, since rates are now lower than when we did our re-fi, but Owning said we (understandably) have to wait a year before we’re eligible for another re-fi.
Did they have to do an in-home appraisal? With the current situation regarding COVID-19, is it possible to get a refi without it?
Good question Jeffrey. Our lender didn’t do an in-home appraisal. A lot of re-fi companies actually don’t do physical appraisals because they expect the previous lender did, and they’re willing to ride the coattails of that work. Instead they’ll do a quick review of the value on paper based on prior appraisals, local comparables and maybe even a drive-by. If it’s been many years since your current mortgage, or you’ve done significant home improvements that increase your home value, you’re more likely to get a request for a physical appraisal, but even then it’s not infrequent for a re-fi lender not to do one.
We refinanceed a variable rate HELoC to a 15 year fixed at 3% with a local bank in KS. Although we did pay closing costs we still save on interest, we guarantee our rates won’t rise as they had the potential to do with the HELoC, and with the lower monthly payments it creates a positive cash flow vs a negative cash flow on the rental property which is what we used the HELOC to purchase.
That’s great Rosie! Getting to a positive cash flow is huge!