No-fee mortgages make it easier to refinance when rates drop
SAN FRANCISCO (KGO) -- When you see homes for sale, how long do you think the new buyers will live there? If they are average, figure on 7 to 11 years. But the mortgage loan that came with the home likely won't be around half that time.
"You may take out a 30-year mortgage, but the average duration of that loan, believe it or not, over the last few years has only been three to five years... Max," says Dusty Broderick, co-owner of Solidify Mortgage Advisors.
His company got Joanna DeCelles into her new home. She says her first mortgage company failed to do that and rates kept rising.
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"I was able to get approved and even though the interest rates, when I started looking back in October were under 3%," says DeCelles, "I ended up right under 5% just last month."
7 On Your Side's Michael Finney notes that 5% is historically a good mortgage rate. DeCelles agrees it is, but 3% is better. Hard to argue that, so thankfully, DeCelles is not forever stuck with her interest rate. If rates drop she can get a new loan and pay less. How? Most mortgages do not come with a prepayment penalty any longer.
RELATED: 30-year home mortgage rates hit 5% for the 1st time in over a decade
"If I came to you today and said, 'I can save you a quarter percent on your interest rate,' which would be effectively, let's just say $32,000 over the term of the loan, and I could do it at no cost," says Dusty Broderick, "So it's free money. Why wouldn't you do that?"
You should, and DeCelles says she will. She has already placed her order for a new loan if rates drop. She says knowing that made paying 5% easier to take.
RELATED: Home prices rose 19.2% in January from last year
"I feel like that gave me a lot of relief that in the future I'm not going to hopefully be paying that 5%," she says.
The key is to make every loan a "no fee" loan. There are plenty of those out there. So prepay nothing and you can just wait for the next lower rate to come around without worry.
Take a look at more stories and videos by Michael Finney and 7 On Your Side.
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