Alternatives to Refinancing

One often overlooked alternative to refinancing is to renegotiate your terms with your current lender. Unfortunately, the lender you think is your lender is usually just your servicing agent. Many loans are sent to Wall Street and repackaged to investors as "mortgage-backed securities." These mortgage-backed securities are then sold to investors such as mutual funds and pension funds. Once the loans are sold, they are placed into a pool of loans, so the loan terms cannot be changed. However, if your lender really does own the loan, you may be able to renegotiate the terms of your current loan rather than refinancing. Refinancing is expensive because refinancing is taking out another mortgage. If you can renegotiate your terms with your current lender, you will save thousands in fees by not having to take out another mortgage.

If your income falls, for example, you may turn to your current lender before contacting a mortgage broker. If you have 22 years left on your mortgage, for example, your lender may agree to extend the loan term to 30 years, thereby reducing your monthly payments. Another option is to ask the lender to convert the loan to interest only. This will reduce your payments significantly. The lender may agree to convert the loan to interest only for a few years, or they may agree to make the change permanent. If you are looking to refinance in order to obtain a lower interest rate, approach your current lender first. They may agree to drop the interest rate slightly in order to keep the loan.

Home Refinance Rates

When asking to change the terms on an existing loan, do not be surprised if the answer is a resounding, "No!" But remember that it never hurts to ask. Some lenders are eager to work with their customers in order to retain the loan and will sometimes change the loan terms for a reasonable fee. Realize that lenders like to keep loans; they do not like to see loans paid off (which is what happens when their customers refinance). It costs a lot of money to get a loan going, so many lenders do not start reaping profits for a couple of years. They are not eager to see aged loans paid off, so they are often willing to be flexible on interest rate and other terms in order to retain customers.

Copyright © 2007 Wade Young.

Alternatives to Refinancing