Just about every bank offers mortgage refinancing, and many lenders will vie for your business. You can apply with any bank or mortgage broker, but there are good reasons to refinance with your existing lender.
Potentially receive a better mortgage rate
Mortgage lending is a competitive business, and if you’re a long-term customer, the bank undoubtedly wants to retain your business. For that matter, refinancing with an existing lender can potentially result in a cheaper mortgage rate. This doesn’t mean you shouldn’t shop around and compare rates with other banks. You never know, a competitor may offer a better deal. If your existing lender is determined to keep your business, the bank may agree to match your best quote.Streamlined process
Since you have a history with your lender, refinancing with the bank might be quicker than refinancing with another financial institution. Mortgage lending requires a lot of documentation. This includes tax returns, paycheck stubs, bank statements, and information about your various other assets. It can take days to gather your documentation, and it takes additional time for the mortgage lender to review this information. To accommodate existing customers, many banks streamline the approval process. They might request fewer documentation, resulting in a faster process.Fewer closing costs
Closing costs average two percent to five percent of the loan amount, according to Zillow. And unfortunately, this is one costs many don’t consider when refinancing a mortgage loan. You can pay this expense out-of-pocket, or the lender can wrap closing costs into your new mortgage loan, increasing the total loan balance. Refinancing with an existing lender can prove cost-effective because the bank might eliminate a few mortgage-related fees, resulting in cheaper closing costs. For example, they might waive the appraisal, the title search fee or reduce the loan origination fee.Avoid a prepayment penalty
A prepayment penalty is included with some home loans, and the purpose is to deter a borrower from refinancing the mortgage before a certain amount of time has elapsed — typically two to five years.If your mortgage has a prepayment penalty and you refinance during the penalty period, the bank might charge a fee, such as six month’s of interest. This is a tactic used by lenders to stop mortgage borrowers from going elsewhere too soon. This way, the bank can recoup some of their investment plus interest. But if you refinance with an existing lender, the bank might waive the prepayment penalty since you’re remaining a customer.
Bottom Line
Refinancing can help you secure a better, cheaper mortgage. You don’t have to stick with your current lender, but there are sound financial reasons of doing so. Understand, however, that to enjoy the perks of refinancing with an existing lender, the bank must own your loan. If the bank sold the mortgage to a third-party lender, it has to adhere to this lender’s refinancing guidelines, in which case you may not receive the same benefits.source: totalmortgage.com
