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April 27th, 2012

Is that refinance offer the best you can get?

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Refi ApplicationIf you received an email, phone call, letter or overnight package from your mortgage lender with a refinance offer, your first reaction may be a self-congratulatory pat on the back. While hundreds of other homeowners are pounding the pavement looking for a lender who will approve their refinance, you’ve been selected by your lender as a customer they want to keep.

Bank of America, Chase, Wells Fargo and Ally (whose home loans are serviced by GMAC) all practice strategic marketing to their customers, targeting mortgage borrowers with a record of on-time payments for refinance offers. In addition, these lenders are feeling the pressure to refinance their customers because of the recent attorneys general settlement.

Banks generally offered a refinance with a lower interest rate, but others refinance offers can include reduced fees and streamlined offers that require less borrower documentation.

Some of these refinance offers are for a limited time only, particularly if you’re quoted a specific mortgage rate. Since mortgage rates change daily, a refinance offer at a particularly low mortgage rate may create a sense of urgency for borrowers.

Should you accept these offers?

If you are the recipient of a solicited refinance offer, your decision to accept or decline should be based on some strategic financial planning.

“Whether or not you should accept the offer depends on your situation,” says Keith Gumbinger, vice president of HSH.com. “If you have excellent credit and deep equity in your home, then you may want to compare this offer to others and shop around. But if you have some minor credit impingement, income dislocation in recent years or are underwater on your mortgage, you may want to evaluate the loan with the understanding that the likelihood that you will qualify for a refinance from another lender is low.”

Gumbinger points out that when lenders offer a streamline refinance, some homeowners may opt to accept it because even if this refinance deal doesn’t have the lowest possible interest rate, it may have lower fees or simply be an easier and faster application process.

“If the difference in interest rate is small, you may want to ask yourself if the trade-off of convenience is worth a tiny increase in price,” says Gumbinger.

Refinancing considerations

If a refinance offer comes out of the blue and you haven’t been considering refinancing, you may want to see how compelling the offer is and where you are in your current mortgage, suggests Gumbinger. If you are intending to move within a few years, a refinance may not make sense.

“If you decide to shop around, you should start by looking at your credit score because access to the best rates is limited to borrowers with a credit score above 740,” says Gumbinger.

Gumbinger says researching current mortgage rates on sites such as HSH.com or Shoprate.com can help borrowers make price comparisons. You can also contact your local bank branch or credit union, contact a recommended mortgage broker and reach out to a bigger bank. Gumbinger says, “Leave no stone unturned before you decide whether to accept your lender’s offer.”

While you may be tempted to negotiate with your lender after you receive a personalized refinance offer, Gumbinger says you are not likely to be successful. However, if you are interested in switching to a different loan term such as to a 25, 20, 15 or 10-year mortgage from a 30-year fixed-rate loan, you can ask about the availability of alternate terms.

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One Response to “Is that refinance offer the best you can get?”

  1. Charles Wayans Says: May 5th, 2012 at 1:34 pm

    I have a 30 year fixed mortgage with Bank of America with NACA as the Servicer. I was out of a job for a few years. So, a modification without employment wass out of the question. Recently, I went through a modification with NACA via Bank of America. I was three months in arrears when the ball started rolling on my modification. I was and still am leary of NACA because they have implemented a new requirement of a Security Agreement which puts them in the 3rd position on the mortgage. A few weeks ago, I received information for a trial modification which has increased my mortgage payments. I am a little puzzled by all of this. I would have thought that given that I purchased my house for 150k and they are now selling for 41k there would have been an interest rate or principal reduction. An increase was definitely a surprise. Should I attempt to obtain a modification with BofA directly? Or, should I consider letting it go? It doesn’t seem to make sense to continue throwing money at something that has lost its value considerably.

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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