Do "buy now, refinance later" and "get the seller's mortgage rate" strategies work?
Feb 18, 2023
Do Austin
By   Internet
  • City News
  • Buying a home in the US
  • buying policies
  • US property
Abstract: Mortgage lenders went through a severe recession last year, with many forced to lay off workers to stay in business as interest rates soared and buyers pulled back. Now those players are back, ready to fight for market share and try new promotions to lure home buyers.

Will these strategies help business? "If the economic backdrop is not good, we will see mortgage rates come down, but it may not be enough to spur lending activity," said Greg McBride, chief financial analyst at Bankrate.


"This is not just a function of interest rate movements... "If the underlying economy is very weak, that will dampen demand from a lot of potential home buyers," he added.


Overall, sentiment remains pretty weak: only 17 percent of consumers surveyed by Fannie Mae in January said it was a good time to buy a home, compared with 52 percent in January 2021.


"Consumer confidence in the housing market remains depressed by historical standards," Doug Duncan, Fannie Mae senior vice president and chief economist, said in a statement.


"Until we see lower prices and mortgage rates and some improvement in affordability, we expect home sales to remain subdued in the coming months," he added.


Lenders are trying new ways to boost mortgage interest and demand. Here are three new promotions MarketWatch has spotted over the past few weeks.


The mortgage arm of Seattle-based Flyhomes is offering "Buy now, refinance later" promotions that allow homebuyers who borrow from the company to refinance later for free if interest rates drop. This helps them avoid refinancing fees and other costs.


Refinancing involves buyers paying closing costs, which average about $5,000, according to Freddie Mac. The cost of refinancing a mortgage can also range from 2 per cent to 6 per cent of the loan amount, depending on each LendingTree.


For Flyhomes, offering refinancing costs is their way of telling buyers that they shouldn't wait for interest rates to drop before buying a home.


"We want to remind these buyers that they can actually refinance their mortgage in the future, and that a 30-year fixed loan doesn't really mean 30 years," Dan Richards, executive vice president of Flyhomes mortgage, told MarketWatch.


The company also admitted that it only broke even by providing refinancing costs for home buyers.


"We're not going to make any money [from the refinancing]," Richards said. "But we want to build long-term relationships with our customers."


Other companies have these promotions, too. But the timing was deliberate. "Our whole purpose is to get buyers off the fence now and help them open the door to purchase during this uncertain time," Richards said., based in New York, offers a one-day mortgage process to speed up home purchases.


The company says that while the traditional loan approval process takes days to complete, their product allows consumers to receive a prequalification letter in a matter of hours.


"We launched in beta this time last month," Vishar Garg, founder and CEO of, told MarketWatch. has completed $188 million in one-day mortgage financing commitments so far this year, Garg said.


Other companies also offer fast-track approval processes. But McBride said's move to speed up the mortgage process could appeal to people who have only recently gone the traditional route and feel like "it took a long time."


Carrington Mortgage Services, based in Anaheim, Calif., is talking about helping home buyers get "putative mortgages," where qualified buyers can purchase homes while taking over the seller's mortgage rate.


This is particularly interesting because some sellers have secured ultra-low mortgage rates and are worried that this valuable deal will disappear.


"The idea of assuming a mortgage that might start at 4% rather than getting a new mortgage at 6% or 7% is particularly attractive," says McBride.


"In years of falling interest rates, that message doesn't necessarily resonate," he added.


The company did not respond to MarketWatch's request for comment.


Assume that mortgage lending has been around for decades, but it has been largely untapped - and for good reason.


While such a move is highly desirable in principle, it is also very complicated to implement. As HousingWire recently described, these loans are notoriously tricky and difficult to navigate.


As the housing market slowly emerges from a slowdown, mortgage companies are pulling out all the stops to attract buyers.


When rates jumped from 3-4% to 7% in November, lenders said they were terrified. "We were really scared," Garg said.


"The 475-basis-point hikes in a row are painful," he added. "Honestly, we're just hanging on."


Richards joined the company in September, a few months before interest rates spiked. "It's crazy," Richards said. "No one could have seen this coming. The average 30-year fixed rate yield over 7 percent was totally, totally unanticipated."


The Mortgage Bankers Association said Wednesday that its latest survey showed rates picking up again after five weeks of declines. Buyers are pulling back again.


While many of these deals may not be brand new or game-changing deals for those who are rate-sensitive, they may still suit their needs.


All in all, given the dynamics of the entire real estate industry, these promotions will not have a significant impact on transaction volumes. Even if prices do fall, "the inventory of homes for sale is still very limited," especially for first-time buyers looking for their first home, Mr. McBride said.