Refinancing is a strategic financial tool that can help you fix financial woes, or leverage your current finances. Many people refinance their current mortgage to reduce their monthly payments when money is tight. Others choose to extend the length of their loans for the same reason. Meanwhile, there are those who prefer to get a new loan with a shorter amortization period in order to pay off their mortgages earlier. Refinancing to avoid potential interest rate spikes is also a common reason why homeowners refinance. More importantly, it’s a typical resort to get hold of cash from the home’s equity reserve. Indeed, refinancing serves a variety of functions for the homeowner. But when the time comes to refinance, a lot of homeowners are faced with critical decision-making issues. One of these is the question of whether it is wise to get a refi with their current lender.
Essentially, there’s no hard-fast rule that says you need to get a new loan with your lender. In fact, there are a lot of homeowners who prefer to get their new loans from a different company. But before you go shopping for a new lender, consider these reasons why you should just stick to your current mortgagee.
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Better mortgage rate
The first thing you’d be looking at when you refinance your mortgage is a low interest rate. This is the base element you use in choosing a lender to refinance with. Naturally, you’d given in to the lender that offers you the lowest rate. But in an effort to keep you as a customer, your current lender might dive into the competition and offer you an even lower rate. This is the typical case.
Of course, your interest rate would also depend on your credit score, and is not solely a lender factor. Refinancing typically requires the borrower to have a credit score of 680 although if you want to grab the lowest possible rate, you need to have an excellent score of 740 or above.
Faster closing time
The typical mortgage process takes about two weeks to a month to close. Appraisal and title searches can seriously hold up the procedures. But if you refinance with the same lender, chances are they will wave some parts of the origination such as title searches because of the original loan. This leads to faster closing time.
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Lesser closing costs
The typical cost of closing a mortgage deal amounts to around 3 to 5 percent of the overall loan amount. That means if you’re refinancing a $250,000 home, you will have to pay $7,500 to $12,500 for closing. Depending on the refi program, your lender could allow you to roll this amount to the loan balance – for a cost. They may also increase your interest rate if you choose to take this path.
The costs of closing usually involves fees charged for originating the loan, discount points, cost of appraisal, and title search, among others. Although this is not completely eliminated when you refinance with the same lender, there is a great possibility that they will significantly lower the cost as an incentive for you if you refinance with them.
Greater chance of avoiding prepayment penalties
Most lenders discourage their clients from refinancing too early by placing prepayment penalties on loans refinanced within a certain period. This is a mechanism they use to safeguard their interest returns. If, however, you choose to refinance with them, you can speak to them about the possibility of removing this fee, since you will still be doing business with them.
Refinancing itself is a big decision to make, not to mention a costly one. If you don’t have substantial reasons to let go of your current lender – e.g. unsatisfactory customer service, hidden fees, then why change?