Refinancing With Your Current Mortgage Company

by Kevin on April 28, 2009

We’re in the midst of refinancing our first mortgage. In fact we are scheduled (again, it was delayed) tomorrow. I thought I would write out a few posts explaining what we are going through in hopes that it might help one of my readers down the line some day.

Why We are Refinancing Our Mortgage

We just bought this house a year and a half ago. Why would we even consider refinancing? Isn’t that what people do when they want to pull cash out of their equity?

We’re refinancing because the financial crisis has forced rates down to historical lows. We bought pretty much near the peak of the real estate bubble. By refinancing we will be saving 1.625%.

In case you didn’t know, 1.625% on a mortgage is a huge savings in interest. That’s the only reason we are doing this. Our loan balance is going to stay roughly the same, and we are going to apply the difference in payments (the savings we’re getting) to the second mortgage. We’re sacrificing some other things, too, and should have the second mortgage paid off in two years.

Always Try to Refinance with Your Current Mortgage Company

This is an absolute must. We’re going back with the same lender that originally lent us money to buy the house.

We did this for a few simple reasons:

  • we are familiar with them
  • we can negotiate on closing costs
  • they were equally competitive on rates as other firms

The second point is key. We just closed 1.5 years ago. Some of the closing costs that you would typically incur (and that we did incur originally) can be negotiated away because you’ve got the relationship with the company. I’ll write on this in more detail tomorrow, so come back for a more lengthy explanation.

On top of that we aren’t sacrificing long term interest costs by going with the same firm. Our lender had rates that were in line with other lenders — so we get to save on closing costs without sacrificing ourselves to a higher interest rate.

We’re scheduled to close tomorrow afternoon. Hopefully I’ll have a post up Thursday morning celebrating the fact that we are officially refinanced rather than complaining that it was delayed again!

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{ 5 comments… read them below or add one }

Kelly April 28, 2009 at 7:19 am

Good luck with the refi!
I hope it actually happens this time.
We refi’ed earlier this year and we couldn’t be happier!
We changed companies (to our current bank) and had the same drop in interest as you. 🙂
We’re saving $320/month!

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SavingDiva April 28, 2009 at 7:49 am

Wow! I’m having enough problems figuring out what is going on with my first mortgage! I don’t think I could handle a refinance 🙂

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Garry - thisimprovedlife April 28, 2009 at 10:21 am

Good luck with the refinancing. We would consider doing the same except we are locked in for another 3 years.

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DanL April 28, 2009 at 12:09 pm

Kevin – agree that speaking with your existing lender is an option, but not always the best one.

What is negotiable with one lender is negotiable with all lenders. Everything is up for negotiation when it comes to a mortgage, it just depends on how much a lender/broker is willing to give up.

I would encourage readers to beware if your current lender contacts you about refinancing because it may not be the best deal. In this case, the lender knows they already “have” you so offering you a rate slightly above their competititors is likely. The borrower thinks the lender is doing them a favor, in reality the lender knows there is more money being made and a customer has now been retained at a rate above the market.

Just some food for thought, but I encourage all of my borrowers to shop, and I teach them how to do so! I hope your closing goes smoothly!

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Kevin May 3, 2009 at 2:14 pm

@Kelly: Woohoo! What are you going to do with an extra $320?

@SavingDiva: What do you mean? What kind of problems are you having?

@Garry: What kind of a mortgage are you in that won’t let you refinance for another 3 years?

@DanL: You make a good point. I suppose there might have been someone out there that would refinance us for less, but I’m not sure how much lower they might have gone. Also since we are at about 90% loan to value and would need to get approval from our current bank to let another bank refinance us, I wasn’t sure how successful that would be. The situation would be different if we only had one mortgage.

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