Thoughts on Principal Curtailment Refinancing (Primary Res)?

[Lem Diaz]

For the last 1.5 years I've been refinancing my primary residence every 4 months. Curious to get BP member's thoughts on this.  Disclaimer...I'm new at RE investing...go easy on me.

The Setup (one cycle's worth):

• I refinance with a slightly increased rate (circa .25-.5%% or so) on a 30yr fixed and get 2.5% of the loan amount back in the form of principle curtailment (after closing costs are handled).
• Refinance again 4 months later and do the same thing.
• Example straight from my last refi which was last month (rounded numbers for simplicity):
  • Loan: $596k
  • Going rate at the time: 4.1% (30yr fixed)
  • My rate: $4.5%
  • $14.9k money back
  • -$4,325 for closing costs
  • $10,575 is what I had left over which went straight to pay down my principle.
  • There's obviously more math to this, but these are the highlights/basics.

As I understand things, the lenders (in this case the loans are sold to Fannie and Freddie - so for all intent and purposes they are the ultimate lenders) are paying the loan broker a fee for originating a loan. To protect themselves they require that the loan not be paid off in less than 120 days. But after that it's ok. Of course they don't like it, but that's tough - we're following the rules. Normally the loan broker simply pockets the fee, but in this case my agent is sharing it with me, the borrower, discounting his services in return for greater volume (i.e. doing this every 4th month - really every 3rd, but it takes a month to close). There are rules controlling cash out, so instead the rebate is given through principal curtailment and my loan principle drops, in my case $10,575

There are obviously more nuts and bolts baked in to this...but this is a simplified version of how I understand this to work. 

Some would argue that you're at risk here is if rates go up.  I counter that with...sure rates will go up (and they are), but the difference in paying 0.5%, 1%, 2%, even a jump of 5%+ percent more on the rate makes my monthly mortgage go up $10, $50, $200, etc but that amount over 4 months in comparison to getting my principle reduced by 10k at a clip means I still come out on top.

I'll stop there as I'm sure this will elicit some interesting dialogue and strong opinion.