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Why You Current Lender Can Be Your Best Friend For Refinancing

Written by Posted On Monday, 21 October 2019 12:15
Why You Current Lender Can Be Your Best Friend For Refinancing

Because the mortgage is probably the single biggest financial commitment that most adults will ever take on in our lifetimes, it makes total sense to review it every few years to ensure that we are not being taken for a ride by lenders.

As the sheer size of a home loan can easily run into tens or even hundreds of thousands, even a tenth of a percentage point can mean a lot of money in dollars.

This implies that even when a borrower is paying just 0.01% above what interest rate is available in the market, the actual amount in dollar value that can still be significant enough to add up to thousands of dollars over the tenure of the loan.\par

Usually when a borrower has identified better homes loans offered by other lenders, the first thing they think off is to move the debt and refinance it with the lender offering the better deal.

This can be partly because the current lender is not competitive with the mortgages.

But even when it might seem obvious that moving the housing loan to a new lender is the best way forward, one should still inquire with the existing lenders to see if they are willing to reprice the current loan to a more attractive one.

Refinancing is different from repricing a home loan in that the former refers to moving to another lender, while the latter refers to staying with the current lender.

Both would mean changing the terms of the current loan to a new set of terms.

But repricing with your existing bank can comes with some unique perks that don't come with refinancing.

The first is that the bank would already have your personal documents that were submitted when you first applied for the credit facility and obtained approval.

This means that all the paperwork you might have to submit to reprice the loan would just be a few documents to update your personal income. Some lenders might even waive additional documentation as they are totally comfortable doing business with you.

This often happens when they have put a borrower under a "premium" customer category.

You'd essentially avoid the hassle that goes along with preparing all the required documents of making a new loan application.

A second advantage of trying to work out a deal with your existing lender is that you can avoid closing costs associated with taking on a loan.

Closing costs can be quite expensive. And you can sure bet that a new lender who is refinancing your mortgage would charge you for it. It's a source of their revenue after all.

So even if your current lender is not giving you a better offer, if the difference in interest is not significant, you might still be better off staying with your lender as you save on closing costs.

This really is a decision based on numbers.

Finally, remember that refinancing a debt should be a decision made with logic. Don't let your emotions affect your decision even if you loathe your existing lender.

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