Refinance Mortgage with your Current Lender - Should You?
In deciding to undertake a mortgage refinance, a homeowner often has to consider this option:
"should I refinance mortgage with my existing lender?”The answer is both yes and no.
There are several common objectives why homeowners undertake mortgage refinancing. If your objective of seeking a refinance mortgage is to reduce your interest cost, the ideal outcome is that your existing mortage lending bank agrees to lower the mortgage rate you are currently paying. This way, not only will you enjoy interest cost saving, but also avoid the upfront cost -- generally a couple of thousand dollars -- that you have to pay the lending bank for applying for a refinance mortgage.
So, what tactics should you employ to negotiate with your existing mortgage loan lender? In short, tell him that you are leaving him because his competitors are hungry for your business by offering you more attractive refinance mortgage rates. If your lender wants to retain you as a customer, he is expected to make you counter offers.
You should start by first getting quotes of mortgage refinance rates from other lending banks. Then approach your lender and ask him to beat those lenders' quotes, or at least meet their offers. These competitors' quotes give you leverage in your negotiation with your lender. Therefore you should approach your lender last, after you have gathered your leverage.
If you negotiate with your lender without first gathering quotes of refinance mortgage rates from his competitors, you will not know whether or not his new mortgage rate offered to you is the best mortgage rate. For instance, if you’re at an 8.1 percent mortgage rate currently, your lender may offer you 6.4 percent because it’s significantly lower than your current mortgage rate. Normally, that would be great, but if mortgage rates are at 5.6 percent, your lender isn’t doing you any favors.
Since you are already an established customer of your lender, it makes little sense for him to cancel your existing mortgage loan agreement, and enter into a new mortgage refinance agreement with you and to cause you to incur settlement costs or other fees. You should negotiate with him to simply decrease the mortgage rate that you are currently paying, thereby allowing you to avoid settlement costs altogether.
However, there are drawbacks to using your current lender. Your lender already has your business. Once you pay the lock-in fee, he has your money too. Since he already has your mortgage, he has no incentive to close the deal promptly. The longer he takes to close the deal, the less interest cost saving you will get.
Therefore you should treat your current lender as you would any other lender. If he does not offer you the lowest mortgage rate or best service, take your business elsewhere. While you may feel comfortable to do business with a familiar party, you are not obligated to refinance mortgage with him. If you can save money by going elsewhere, you should do so, obviously.
Mortgage Refinance - when should you do it?
Important things to know about Refinancing Costs
Click here to discover how to quickly build a minimum of $40,000 worth of home equity and pay your mortgage off in 10 years or less without making biweekly mortgage payments.
[back to top]