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Comment by DevKoala | Hacker News Reader

I just refinanced at 2.0% for 15 years in California and I was feeling like a champ for timing the bottom.

I went through 3 refinances last year (also in CA) all at little to no closing costs for a 30 year fixed (4.00% → 3.25% → 2.5%). The math made sense every single time when factoring in the lower monthly payments and negligible closing costs.

At this point I don't know what the point of the loan is anymore. Is there really any realistic intention to ever pay it off? Every single time I thought I had timed the bottom, but rates continue to drop.

How come you had no closing costs? How much really they were?

My broker said it was a standard $3K closing cost if at zero points, but I ended up taking some negative points as a credit towards closing costs.

I refinanced last year for a 0.125% better interest rate, and the bank paid me $1000 to do it. It was the easiest decision I ever made. Basically, there was $5000 in closing costs and the bank paid me $6000 in points. If I paid money I would have gotten a lower rate, but I already had a great rate.

Now, I'm refinancing again, but I'm paying some money. All in all, my net refinancing costs will be around $2000, but I have halved my interest rate almost, and will now be able to pay my home off about 10-15 years earlier (we just bought two years ago).

The point of paying off loans at this point is so that when the whole system breaks down and people are looking for someone other than themselves to hold the bag, you have no business relations with anyone and nobody with a reason to point at you. Folks who are deeply entangled in the financial system will have a lot of potential enemies if the system fails to supply the expected standard of living to everyone. Folks who are basically self-sufficient with no major financial commitments can ride it out in obscurity.

"Neither a borrower nor a lender be / For loan oft loses both itself and friend." -- Polonius, from Hamlet

If you own property there is not obscurity or hiding from the system. Your name is on the dead and on view for the public (especially with the new law recently passed restricting the privacy of shell corps).

Right, but the point is to avoid people caring about you, not people knowing about you. It's fine to have your name out there and on some public records about where you live if everybody is indifferent to your existence. It gets dicey when you owe somebody money, and they owe somebody else money, and then when there's not enough money to go around they're like "Shoot, where can I find some money? I know, I'll turn the screws on people who already owe me something and just collect what I'm owed." Little details like the precise payback terms of the loan and recourse available tend to get lost when court systems aren't functioning, and people only think "Oh, who owes me money that I can collect from?"

(As a side note, this is an important and often-overlooked point about mass surveillance. There's a huge difference between large data-hoovering organizations knowing about you and large organizations caring about you. Most people's best defense against identity theft or blackmail isn't cybersecurity, it's boringness, and the law of large numbers.)

I've never understood mortgage refinancing in the US. Isn't the lender taking a loss when you refinance, since their 20-year asset will now pay less in interest than before? How does the lender make up for this loss, if the debtor isn't paying the difference every time they refinance to a lower interest rate?

The lender has no practical alternative in most cases other than to reject business outright. The reason they go along with it mostly willingly, is the borrower can typically go somewhere else for the loan. The current lender would just as soon keep you as a customer at 2% (vs the old 4%) than see you go somewhere else.

They don't make up for the loss, they accept the lower rate of return vs losing the customer entirely.

Fascinating, thanks for the info. In Norway, fixed-rate mortgage agreements are always made with a clause mandating settlement of the interest difference, in the case of refinancing or early repayment.

The customer therefore has no leverage over the lender by threatening to take the loan elsewhere. They'd have to pay all of the remaining interest if they wanted to settle the loan, or at best settle the interest difference if moving the loan to a lender with a different interest rate. Assuming both banks agreed to the exchange.

Of course, if interest rates increase, such settlement could also favor the borrower. But that hasn't been the case in a long time.

Most mortgages here are floating-rate.

If you have a $1 million mortgage with 5% interest you are paying $50k interest per year. Meaning you are paying most of your interest at the beginning of the loan. If you are down to $750k after 10 years and refinance to 2% you have already paid around $350k in interest . The bank has already gotten the biggest chunk of the profits but takes a "loss" on the remaining portion.

I refinanced my loan once, it took me 5-6 trips to the bank and bunch of signed papers. My rate is low enough and loan short enough that I won't do this again but the whole process in one of EU member states was quite slow and annoying.

Is this better in USA?

When I refinanced it was one phone call and then e-signed a document. And a week or two later someone drove to my house to get a wet signature to complete everything. It was with the same lender though so may have been streamlined because of that.

Would you mind disclosing which lender you went with to get 2.0%? Are you paying points? I'm using Better.com for a refi in CA also but the "best" I can get is 2.625% with 0.053% ($330) in closing costs. They don't even list 2.0%

Edit: Better.com is actually listing 2.0% rates but with $9,100 in points, based on my property and location in CA.

Better is gonna give you pretty high rates -- try shopping with a local lender.

SemperHome. I locked the rate back in October and the closing took over two months, but they delivered the rate I wanted. No points either.

Also, the rates have gone up since then, I keep getting Zillow alerts about it.

What's the point of a 15 year when the 10 year nominal rate - inflation rate is less than the gains you will make in income?

Opportunity cost of the higher monthly payment surely factors in?

Yeah, I got a 15 year loan to save about 25% on my interest payments (3% vs 4%). Looking back, that was totally stupid because had I got a 30 year loan, and invested the difference (which I absolutely would have), I would earned a substantially greater return from the resulting stock boom.

Exactly and makes total sense. Plus, not everyone has infinite income, so people are "rate limited" into choosing the 30 over a 15 or 10.

Isn't that another advantage of 30 year?

Yes, especially if you have an alternative place to park the money that earns N+1, where N is your interest. Anything above that is marginal gravy.

Do Americans always have fixed interest rates?

No, there are fixed and variable rate mortgages.

Although fixed rate mortgages are far more popular because they are subsidized by the federal government. Right now I can choose between a 15 year fixed rate mortgage at 2.375%, or a 30year fixed at 2.75%, or a 5/1 adjustable for 2.75%. Obviously nobody is picking the adjustable rate.

which provider did you go with to get the 2%?

SemperHome late October.

Why can't people borrow in foreign countries? Mortgages in Germany seem to be below 0.7% atm.

That exposes you to currency risk. Right now, 1 euro trades for about 1.23 dollars but that can go up or down (1:1.12 a year ago for example) which would effect your payments over the life of the loan because I get paid in dollars but german banks want to get paid back in euros.

That won't even work within the EU. All sorts of barriers exist between EU states making this extremely difficult if not impossible.

You'll need a salary or other reliable income sources in the EU member state where you're buying, banks there won't offer you a mortgage. Never mind you're earning 5 times the bank employee's salary, just in another member state.

You'll need free and clear ownership of a home in the EU member state where you're earning, or banks there won't offer you a mortgage for your home in another EU member state. You'll only get the loan by mortgaging the property local to the bank, not the actual property you're buying.

Some limited exceptions exist for popular holiday countries, but banks will make you pay for that "privilege".

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