Should you refinance with your current lender?
If you're looking to lower your mortgage rate, it may be worthwhile to stay put -- or consider another bank for your home loan.
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As mortgage rates drift higher, procrastinating homeowners have good reason to get a move on and refinance before the potential savings shrink to nothing. If you have a mortgage charging 5.5% or 6%, a refi can still pay, even though you might end up with a 4.5% loan, not the below-4% rate of a while back. (Bing: How low are interest rates this week?)
But, gosh, all that shopping around is such a hassle. Would it be easier to just call you current lender and see what it can do for you?
That certainly should be the first step because the lender you have might offer reduced fees or another incentive to keep you. But it could work the other way, too, with the lender, assuming you'll stay put in the end, preferring to invest in a new customer.
In the end, you do have to shop around.
Which do you choose?
It's complicated, says Jack Guttentag, emeritus finance professor at the Wharton School of the University of Pennsylvania.
"A small group of borrowers might profit from refinancing with their current lenders -- the firms to which they remit their monthly payment," he says on his website. "Most, however, will do better refinancing with a new lender."
- MSN Money: Check out a refi calculator
The savings that you'd realize by reducing your interest rate in a refi represent a lost income for your lender, even if it issues you a new mortgage. Still, a lender that is losing a lot of customers to competitors may take the initiative to offer you a new loan rather than wait for you to make the first move, Guttentag says. But this deal might not be as good as you could get elsewhere because the lender wants to "give up as little as possible," he says.
"One way to do that is to base their offer on the borrower's existing rate," he says. "In a 5% market, for example, the borrower with a 7% mortgage might be offered 6%, while an otherwise-identical borrower with a 6% mortgage might be offered 5.5%. They can get away with this so long as their existing clients are not shopping other lenders at the same time."
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In assuming you're likely to stay anyway, the current lender may skimp in service to you, preferring to put its energies into roping in new clients. As the saying goes, familiarity breeds contempt.
There's another, little-known factor: Under federal law, a new lender must refund fees if you decide to call off the deal any time before three days of closing. This doesn't apply to a deal with a current lender. It's odd, but that's how it is.
In some cases, Guttentag says, the current lender -- especially if it had originated the loan rather that having bought it from the originator -- will offer a streamlined refinancing, forgoing a credit report, property appraisal and title search. Or the current lender can simply reduce the interest rate on the existing loan, eliminating lots of charges and paperwork.
"Cases where this is possible, however, are few and (are) becoming fewer all the time," Guttentag says. "Most loans today are sold by the originating lender, and even when the loans are retained, the servicing rights may be sold. Lenders servicing for others do not have the same discretion to forgo settlement procedures but must follow the guidelines laid down by the owner of the loan."
- On our blog, 'Listed': Are we ignoring a housing bubble?
In other words, yes, find out what deal your current lender will make. But then get out there and see what others have to offer. And if you do come up with something better, ask your lender to beat it.
There are reasons to refiance other than the current interest rates. I've noticed that the main benefits are the monthly payment, term of the loan, getting cash out, tax implications and payment defferals. It takes discipline and motivation to do the leg work. But I promise, it's worth it!
Reliance First Capital, LLC
NMLS #: 854672
Toll Free: 866-735-9004 Ext. 4035
Refinancing/Mortgages . . . and their subsequent fluctuations; the source of great worry and many a sleepless night for far too many of us.
I very much like to stay informed as to the ever changing financial / mortgage trends. "An informed decision is an educated decision" and, to that end, I can only hope that those people reading this article will exercise due diligence when it comes time to either renew their mortgage or apply for one.
Not to state the obvious, but please be sure that you check your credit score and report before applying and be absolutely sure to check around for the best interest rate and terms possible. This is definitely not the time to trust that your current lending institution has your best interests at heart.
Through onlinemortgageapplication.net I found I could get 5 different quotes through 5 different lending institutions which gave me some easily acquired ammunition before heading off to my own bank to see what they were prepared to offer.
Regardless of which route you take, please make sure that you do your homework and check and double-check the 'Terms and Conditions.' Not all Terms and Conditions are created equal!
I have a 7.5% interest, I have been shopping around, I talked several times with my serving company Ocwen but they refused to consider reducing the interest rate, I talked with another bank but they indicated that since my balance on the current mortgage is less than $50,000 they wouldn't refinance me. However, I called Hillary after reading her advise, I got the challenge to call another bank, I managed to put in the application with a 10-year refinance at fixed 3.75%.
Hillary was able to run me through the details on how to handle it and I am so thankful that she provided her telephone number because I have been paying my mortgage on time but I was shocked that Ocwen only wanted me to restructure my loan which I know I could not qualify for because I was not going through foreclosure.
Thank you so much for the article.
Seriously, who’s eating dust with a 6 or 7 percent mortgage these days? Anyone with half a brain has refinanced in the last 24 months. However, if you somehow missed the boat, here’s what to do: Shop online for the juiciest rate you can find, present it to your current mortgage holder, and politely request even better numbers. Chances are your bank will relent. And it will save you from the sea of red tape a new lender will make you wade through.
The Coastal Property Experts