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Refinancing With Your Current Lender

Even Recent Buyers Are Refinancing

Getting a new mortgage rate in 2016 could be a very good idea.

Now, homeowners who bought between late-2013 and the latter part of 2015 might benefit from a refinance. Rates hovered at or above 4% for much of this time period.

But these rate shoppers may end up with a better mortgage rate by to calling their current mortgage holder last.

Homeowners should be wary of taking the first rate they are offered. This is especially true for those applying with their current lender. Some lenders have systems in place to retain customers first, and offer competitive rates second.

When it comes to mortgage rates, competing lenders can be a very good thing.

Will Your Current Lender Quote Market Rates?

Your lender or mortgage service knows your current rate.

Mortgage lenders understand that their current borrowers could agree to a higher-than-market rate because it’s lower than the rate they have now.

Mortgage lenders employ “retention” staff whose job it is to keep borrowers from refinancing with other lenders.

Lenders know you are looking to refinance if you call about current rates or request a payoff statement that shows the amount needed to pay off and close your loan.

When you call, you may be forwarded to a retention specialist, who is likely to propose an offer based on the rate that you already have – not necessarily the best possible deal.

For example, if the retention employee sees that your interest rate is 5.5 percent, you might be offered 4.75 percent – while a new customer might be quoted 3.75 percent.

The lender “sells” the higher rate with convenience. They could claim that dropping the rate will require less effort on your part. The lender’s strategy pays off in two ways: it avoids losing you to the competition while continuing to earn a higher-than-market rate on your loan.

Mortgage industry news website Mortgage Financing Gazette addresses this issue, recommending that lenders “establish a simple and direct path of action to enable the customer to execute a product switch within minutes and with the least possible friction.”

But for now, a traditional refinance is still the most widely available method of dropping your rate.

Check With Your Mortgage Holder Last

The Federal Reserve website says that even after all of the post-recession mortgage reforms, borrowers still have to shop to get the best possible deals. Lenders typically offer better rates if they know there is competition for your business.

Homeowners should approach mortgage shopping like they would buying a car, refrigerator, or any other consumer item.

By obtaining interest rate quotes from several lenders, you’re better able to judge the quality of mortgage offers. Make sure, however, that these quotes are based on your actual scenario, not just an advertised rate from a newspaper or website.

To give you an accurate quote, mortgage lenders need the property location, your loan balance, approximate property value, and your credit score. It’s smart to get your free annual credit report from each of the three major bureaus. The free reports don’t show your credit scores, but you can check for errors and late payments that may be pulling down your score.

Once you have several quotes in hand, you’ll know if your lender is offering you a good deal, or if you should go forward with a different mortgage provider.

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