Refinancing immediately after closing on a house purchase

Question

I recently purchased a new home as a primary residence with a 4.375% 30 year fixed mortgage. I discovered, a little too late in the process, that I could find rates significantly lower elsewhere -- roughly 3.875%.

If I refinance from 4.375% to 3.875% it would lower my monthly payment by about $153 -- totaling $55,000 in savings over the lifetime of the loan. My loan has no pre-payment penalty.

However, I'm wondering whether it would screw over my loan officer if I were to refinance immediately after the closing date. Is it typical for a loan officer to see their commission pulled back if the borrower refinances immediately? I've worked with this loan officer for a number of years -- she's extremely thorough, knowledgeable and an expert on complicated renovation loan procedures. In the past, I've done a couple home purchase/renovations using her expertise on the financing. I don't want to burn any bridges.

Answer 1

I would ask her to be certain, but it should not hurt your loan officer. The loan officer gets rewarded for originating the loan. There is no penalty for them if a loan is prepaid that I have ever heard of.

However, you need to look at what the closing costs are for the new loan to know if this is a good idea. Consider how much out-of-pocket you'll need to come up with now (or roll into the new loan), and how long it will take you to break even by paying a smaller monthly payment.

Also, be aware that very rarely will you get the actual rate that is advertised. I recently refinanced as well, and the rate I ended up getting quoted (with excellent credit) was generally a quarter to a half point higher than their promotions. I received several different reasons why, mostly regarding changes in the market (even though the bond market hadn't really changed that much), but sometimes those rates included points which were cleverly hidden in the promotional material.

If you have the funds to refinance now and it saves you significantly, then it's fine to do so. It's a shame that you weren't offered a better loan up front as you may have to pay closing costs again.

Answer 2

This contradicts the other answer so I think it's worth mentioning: I believe different companies have different pay structures and the only way you can know for sure is by asking your loan officer.

A friend of mine purchased a house earlier this year and just last week he told me he wants to refi but is currently waiting because he too doesn't want to burn his loan officer (who is a friend of his). He asked and was told the exact date that he could close without affecting his commission. I think he purchased in May which would put the wait at 6 months, but I will confirm.

Assuming the other answer is correct in some cases, I suspect the disparity could be that the commission structure for mortgage brokers is different from that of banks.

Update: my friend's loan officer does work for a mortgage broker, and in his case the commission is paid 6 months after the loan is sold to the bank, which was approximately 20 days after the mortgage closing date. So in his case he waited 10 days shy of 7 months which fittingly happens to land on Thanksgiving day, as I'm sure his loan officer friend is very thankful for it.

Answer 3

In most cases working for a lender instead of a bank, the LO pays a penalty if the borrower refinances in less than 6 months after the purchase funded. The lender and the investor/servicer have an agreement that the lender guarantees the loan up until a certain amount of time (i.e. 6 months). This is to hedge the risk an investor takes, as a quick refinance after a purchase would cause them to purchase the loan with no monetary gain.

Some lenders will absorb this penalty, as the LO often has no control over whether or not a borrower refinances or even sells after a purchase, but many companies pass the penalty on. I've seen the penalty be between 1-3% of the loan amount.

Answer 4

This is an older post, but I wanted to provide a concise answer. If your loan officer deals mainly in renovation loans, she probably has a higher commission structure than that of a loan office that just does conventional refinances all day, as she should, renovation loans as you stated are notoriously difficult, and if she is a pro, she should be compensated adequately. That being said, when a loan officer has a higher commission plan than another, that drives the rate up. If this particular loan was not a renovation loan, then yes you paid a bit of a premium to get it, closing at a 4.375%. Loan officers can and do pay a penalty is a loan is refinanced within 6 months after closing, it's called an EPO penalty ("Early pay off") and every lending institution gets hit with this penalty, it's just whether or not they pass that cost on to the loan officer.

Hopefully that answers your questions.