Lowering interest rate w/o refinancing?
August 29, 2010 9:56 AM   Subscribe

If I tell the bank who issued my mortgage that I am thinking about refinancing elsewhere, will they offer to lower my interest rate to stay? Does this ever happen?

I don't really want to refinance (I've paid off 3 years of my 30 year mortgage and don't want to "start over") I just want my interest rate (6.5%) lower. Am I just dreaming or is there a way to do this without the fees making the whole process not worth it?
posted by coffee and minarets to Work & Money (12 answers total)
FWIW -- when I got my mortgage, I got two brokers and my bank to fight it out amongst each other. I can't remember exactly how far down it went from the initial offer, but getting them to compete like that was definitely worth the time.
posted by kmennie at 10:04 AM on August 29, 2010

Banks do refinance their own loans, and though you may find that this takes less paperwork than going to an entirely different bank, I'm not aware of any banks that simply cut interest rates on existing mortgages because you ask them to.

You have enough time and interest left on your mortgage that, if you can knock enough off your interest rate, this can be worth it. But 6.5% isn't all that bad. It's worse than the unheard of 4.5-4.75% rates we're seeing now, but it's low enough that another two points off isn't going to obviously outweigh fees involved. You'll have to talk to your banker and do the math.
posted by valkyryn at 10:05 AM on August 29, 2010

Yeah, banks definitely compete with each other for rates. It's a total YMMV thing, but it's not unheard of.
posted by kate blank at 10:06 AM on August 29, 2010

You're talking about mortgage modification, and the lender has no incentive to do that unless there is no chance you will be able to make the payments and the alternative would be foreclosure.
posted by smackfu at 10:11 AM on August 29, 2010

You're talking about mortgage modification, and the lender has no incentive to do that unless there is no chance you will be able to make the payments and the alternative would be foreclosure.

No, the OP is asking about refinancing his mortgage. Totally different things. Though it likely is true that the bank with whom he currently has his mortgage has no incentive to offer a lower rate.
posted by dfriedman at 10:25 AM on August 29, 2010 [1 favorite]

Three years into a thirty year is not very far. Alternatively, maybe you can go for a fifteen or twenty year. Ask the bank. Ask other banks. Do the math. Two percent is not nothing.
posted by IndigoJones at 11:23 AM on August 29, 2010

The OP is asking about a mortgage modification in lieu of a refinance. The answer is no, they will not do that. In fact as we have seen from the foreclosure tsunami, banks are reluctant to modify mortgages even if you threaten to mail in the keys and walk away, which is a much bigger loss than a mere threat to refinance.

Your reluctance to refinance seems to be based on aversion to restarting your amortization at 30 years. That would be the wrong way to think about it. The only thing that matters is the interest rate you pay and the fees for the refinance. If the cost is less than you are paying now, you should refinance. Even if you get a new 30-year mortgage, you can choose to pay an extra few dollars per month on the principal and finish it in 27 years just as you would with your current mortgage. Even with the extra principal, the total monthly payment should be less than you are paying now.

The point is that your decision shouldn't be determined by the fact that you have to restart your amortization table, but whether it saves money in the long run.
posted by JackFlash at 12:17 PM on August 29, 2010 [1 favorite]

If you're in the U.S., there's a good chance your bank has sold your mortgage, even though they continue to service it. Freddie Mac and Fannie Mae both offer loan lookup tools that let you see if they own your loan. (I was surprised to find mine at one of them.)

If your bank has sold your loan, I can't see any reason why they'd consider a change in terms.
posted by Snerd at 12:35 PM on August 29, 2010

I think everyone here is being way too definitive. I have had loans with about 4 different banks. One of the banks was happy to do a "modification" anytime you wanted for a fee -- they would reset your fixed interest rate and/or re-amortize your principal for a fee of something like $2,000. They seemed to be happy to have the cash. This bank tended to "hold the note" on their mortgages -- i.e., they did not resell the loans to someone else or Fannie/Freddie. Other banks sell the loans to third-parties, which tends to leave less flexibility for modifications like that. My current mortgage bank (PenFed) will do a similar modification, but they have some eligibility requirements. Mind you, these are not modifications through a government program.

The only way you are going to know what your bank is willing to do is to call them up and ask.
posted by Mid at 12:36 PM on August 29, 2010 [2 favorites]

Do you have a pre-payment penalty? If so, there is nothing they would like better than for you to refinance elsewhere. Even without one, you need to consider how long you intend (can realistically assume) to be in this place. If you expect to move within five years there may be no savings after considering the fees attached to a refinance.

The bank knows all of this. They are betting on you moving within five years. If you do (or you re-finance elsewhere) they simply have the money back to lend to a new customer. If you don't, they have a loan that produces a better return than it would if modified or re-placed today.

I don't see their incentive to re-finance today.
posted by Old Geezer at 1:22 PM on August 29, 2010

I don't quite understand. I think the poster wants refinancing, not modification for hardship. If so, some banks will play along, to prevent the mortgage from going elsewhere, and others want. The sticking point is often whether they will swallow the filing costs and so forth that most jurisdictions impose on refinances. Some brokers will absorb part of the costs in exchange for their fees, which a bank may pay them. You just need to ask.

Costs aside, I don't understand the reluctance to refinance here. Dropping two percentage points can save you a lot of money, if you're planning on staying put and not otherwise refinancing in the near future. I wouldn't worry about losing your progress . . . and indeed you can possibly progress to a 20 year term.
posted by Clyde Mnestra at 3:29 PM on August 29, 2010

It's not like a credit card, were the rate is negotiable. To get a new rate, you have to re-fi, and, yes, your bank should work to keep your business.
posted by theora55 at 6:58 PM on August 29, 2010

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