Borrowers have plenty of questions about refinancing. Questions like: “What are the reasons why I should do it?” “How can I do it right?” “Do I need to provide an income tax return to refinance?” “How can I tell if refinancing will really save me money?” and so on. But there is one question of paramount importance that is usually overlooked and often get poorly considered by many potential refinancers.
“Should I refinance with the same lender?”
Every professional will tell you that it’s up to you. You have the freedom to either continue working with your current lender or shop around for the lowest rate offer you can find and open a new mortgage with another partner. That is true. Lenders are always after business and if you have good credit, you can easily find one that will agree to your terms and needs. But while you get busy trying to make deals with new people, you might fail to realize that your best choice is already working with you.
Let’s take a closer look at the reasons why it would be smarter to stay in business with your current partners:
Get a better interest rate
So let’s say you want a lower rate for your mortgage payments so you decide to refinance. Now you communicate this with your financing institution and let them know you are asking estimates around for the best loan rate. They will respect your decision, but that doesn’t mean they will not get in the fight to win the deal again. You are already their customer and you getting a new loan means they are at the risk of losing you.
Following this logic, they are most likely going to offer you a lower interest rate to compete with other players, although the rate you will get is still commensurate with your current creditability as a borrower.
Pay less for closing
The cost of closing presents one of the most common reasons why borrowers rethink refinancing. Typically, the closing cost amounts to about 3 to 6 percent of the loan amount. These fees include origination, processing fees, credit checks, discount points, and other third party costs. If you cannot pay for these fees upfront, chances are your lenders will give you the option to roll the cost of closing on the loan. This is in exchange for a slightly higher interest rate and therefore a bigger mortgage balance.
Refinancing with your current lender does not mean avoiding these closing cost payments, but there is the possibility that the lender will help you save on the cost by waiving some of the fees as an incentive for doing repeat business with them.
For the reason that your current lender might waive some of the processes in assessing your application, refinancing with them could mean a shorter closing time than average. Mostly, it takes about 30 days to close on a mortgage because of the paperwork and the counter-checks. Should they decide to waive the requirements that take time e.g. the appraisal, or the title search, that could grease the process and hasten the closing time of the new loan.
Avoid prepayment penalty charges
Some lenders may set a particular limit as to how you pay for your mortgage. A classic example is through setting a prepayment penalty. For instance, your lender may charge you a half-a-year worth of interest payments if you sell or refinance your home within the first five years of getting your new mortgage. Always be on the lookout for prepayment penalties else you might be unprepared for the financial obligation it will entail when the unexpected surfaces.
One way to make sure it will not pick you up when you least expect it is to negotiate with your lender to remove it in your new terms. They are not obligated to but may do so as part of your incentive.
Should you stay or take the risk somewhere else? Look into the details and evaluate which is the wiser decision for you.