Interest Credit Mortgage

Has anyone heard of this mortgage?

I filled out a lowermybills app to see about a refi, and I was
with calls. One of the brokers gave me this plan as an option. It
goes, that they would charge you a point higher then the market
interest rate, and in return, the will cut you a check for X amount
after you close

i guess the reasoning is that since they get a higher interest loan,
they (the broker) gets paid more in the back end. My loan payment as
a whole goes up like 100 bucks, but i get 3500 back after I close.
The idea is to refi like this and get money back every six months, so
your mortgage as whole goes down

Has anybody heard of this???

They aren’t offering it if they aren’t making money on it, ultimately in the end you are losing. It sounds good to try and refi every 6 months but every refi is going to cost you money not to mention the hassle and the fact that this loan may have a prepay penalty. If it is going to make your loan payment go up $100 a month just pay $100 a month extra towards principle.

By increasing the interest rate on your loan to an above market rate they are increasing the present value of your loan to the investors they will sell to immediately upon closing the loan. Therefore they make more money and evidently are passing a small portion of that along to you at closing. As Rich says there is no free lunch, every time you refi you have to pay closing costs plus your paying an additional $100/mth in interest, this is not a prudent method for reducing your mortgage. If that is your goal, then reduce your interest rate, pay extra principal each month or don’t borrow so much to begin with.

It appears that your lender has been somewhat open with you, as you understand where the rebate orginates from (the higher the interest rate, the larger the premium on the back end), but this is most likely a “wolf and sheep’s clothings” persona you are dealing with.

What is offensive is that the lender is suggesting this as a long term strategy. Here is the issue:

a. You will only benefit from this strategy in a declining interest rate enviroment.
b. The repetitive closings will eat away at any cash rebate value that could result from this tactic.
c. Repetitive refinancing is a behavior indicative of a predatory lender. It’s called “churning”. Essentially, churning is the creation of extra profits through excessive and repetitive financing activities with one borrower.

Further references to churning can be found at:

I don’t have a problem with this persay, as long as it is executed in a manner that benefits the borrower.

The problem is that you won’t know until it is too late…

Proceed with caution and get another lender involved (to keep your lender honest).


Scott Miller

Great advice Scott! :beer