I read with great jealousy how 2million got an offer from Wells Fargo to refinance to a lower interest rate with absolutely no cost (read here)!
The drop in the interest rate was not that large, only 0.25%. Still, when you’re talking a mortgage, and you’re talking thirty years, or even fifteen if you got into a shorter term mortgage, that can add up to some serious savings.
2million, of course, took the deal.
I thought about why a bank would potentially do that, as you’d think they would be reluctant to offer a deal that only means less income for them. While that’s true, I think I figured out why they would.
They’re trying to avoid additional refinances.
In 2million’s case, they dropped him from 4.625% to 4.375%. Yes, they’ll get less money, but my guess is that Wells Fargo knows that 2million is now less likely to look into a re-finance that, while he would have to pay closing costs, would get him closer to the 4% range. Wells Fargo knows that if they can keep enough people above the prevailing rate, they’ll end up with more revenue in the long term than if they took the chance of letting them re-finance.
2million got one part wrong when he said: “If Wells Fargo is offering this type of program that means most lenders are as well.”
So far, I haven’t heard of any other bank doing this and I know for a fact that my lender (Citi Mortgage) hasn’t done any such thing.
Ah, but I can only hope, right?