2 ms·
> If you borrowed at 8% so whoever lent you at 8% would take a loss if you could just abandon that rate and went with someone else's 2% rate. Therefore, it can
by chii 3y ago
> If you borrowed at 8%
so whoever lent you at 8% would take a loss if you could just abandon that rate and went with someone else's 2% rate. Therefore, it can't be this simple - somebody must be eating a loss. I suspect that 'somebody' is Freddie Mac and Fannie Mae , which is a quasi-gov't corporation and therefore, they might be able to take the loss without worrying about profitability.
- Spivak 3y ago> so whoever lent you at 8% would take a loss Why would they? If I lend you $100 at 8% interest and for simplicity let's say it's an interest only loan so you only pay the interest I get $8/yr for my trouble. Then you refinance with someone else at 2% and I get my $100 back. All good, now it's available to me to loan back out. The only thing I've "lost" is future profits but you also could have just paid off the loan entirely in cash to the same effect.
- chii 3y ago> The only thing I've "lost" is future profits but you also could have just paid off the loan entirely in cash to the same effect. but this is a real loss, since the original loan contract was for 8% p/a for X years. In a different country like australia, a fixed term loan cannot be paid off without the expected interest. This is why i am confused as to what makes refinancing work - who eats the loss?
- Eddy_Viscosity2 3y agoIts not a loss, its an unrealized gain. What happens is they just don't get to have it, but they still get their principle returned as well as any interest up that point -- i.e. they made still made a profit.