Re: persfin-digest V5 #68/Reply to NPNC Mortgage.

From: hic@world.std.com
Subject: Re: persfin-digest V5 #68/Reply to NPNC Mortgage.
Date: Mon, 23 Nov 1998 16:51:36 -0500

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> 
> Date: Tue, 17 Nov 1998 15:52:06 -0500
> From: PowellFamily <PowellFamily@tri-countynet.net>
> Subject: NPNC Mortgage
> 
> >From looking at this mortgage, it seems to me that the costs ar
> right in dues to the fees and higher interest rates.  There is 
no such
> thing as "no cost".  If you plan to keep your loan for a longer 
period
> of time, this method may not be worth it.
> 
> Sherri Powell

Dear Ms: Powell:

Yes, you're quite right. No free lunch and all that. At the price 
of repeating myself let me sum up my 'model' of NPNC financing. 
The lender and you make a wager. The bank says 'if you pay me a 
chunk up front I'll give you a lower rate.' The bet is that the 
mortgage will no longer exist before you've broken even. The bank 
will sell it, or you'll refi., or sell the property, or God 
forbid, drop dead.

I argue that I'd rather bundle in the up front costs (no free 
lunch) with a slightly higher rate -usually about 1/2 % - and bet 
that the mortgage wont survive till the break even point. That way 
I win the bet, not the bank. Agreed, I might loose the bet. But 
it's your choice on how you want to bet. In my case I've refi'd 6 
times - all NPNC - and lowered my payments from over 9 down to 6 
3/4%, in about 3 1/2 years. All my mortgages had 'no prepayment' 
penalties, and are renewed for 30 years. I then control the payoff 
rate.

If you need actual numbers to compute the crossover point, tell me 
your numbers and I'd be happy to calculate it for you. It is an 
important factor in judging the value of the wager. 

Sincerely, 

Howard I. Cohen 






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