This content was created by Sander Scott. This content was uploaded by Sander Scott. This is a YouTube video titled "How a Free Refinance Program Can Work" (created 2024-09-27). The excerpt is a short dialogue between two speakers (SPEAKER A asking questions and SPEAKER B explaining) about how a no-cost refinance works: borrowers must remain in the loan for at least six months because lenders pay commissions and need a break-even period; lenders bundle loans into mortgage-backed securities sold to investors (via the CBOE) to recoup costs; and in some cases small upfront costs may apply if the payback period is short. The content is instructional/explanatory about mortgage refinance mechanics and lender economics.
Chapters
So let's expand on that no-cost refi. So in other words, you work with a home buyer and providing them the loan, and then at some point in the future, they may— rates go down, they want to refi, it makes sense for them to refi. How does that work where it's no cost?
6 months. First of all, they have to be in the loan for 6 months. The reason for that is, and to be completely transparent, The buyers don't pay our commissions. That's not how we make our money. How we make our money is the lenders pay us a commission for us to help them build mortgage-backed securities in bundles of $50 to $75 million at a time. Those are then sold to Wall Street investors through the open outcry trading platform at the Chicago Board of Exchange, CBOE. We get a commission to help them bundle those loans. However, if I pay that loan off in less than 6 months, they're going to want the money back because that 6 months is about their break-even for what they paid me. And if I churned that loan and paid it off in, say, 30 or 60 days, they'd want the money back because I'm costing their money, or they're not going to want to do business with me. So the rule is there has to be 6 months from note date to note date. Then the market also has to cooperate. To where we're able to get enough credit that we can cover those costs. In some cases, there are costs, but if I can show a payback period that's maybe a couple of months, and we've done that, where it's like, listen, yeah, it's gonna cost you $300 or $400, but I'm gonna save you, if I save you $100 a month, $100 a month, and it costs you $400, and you can break even in 4 months, you can't not do it. Or you can wait until we get enough juice that we can make that happen.
