The Benefits of Refiancing a Home with Your Current Lender

There are two primary means of refinancing a home. The first is to use your current lender and simply modify the contract. This can be hard to get accomplished since the lender has little incentive to offer you a better deal. The second option is to get a second mortgage, use it to pay off the first, and leave your mortgage lender all together. This second option is typically easier, but it comes with a lot of penalties. When possible, it is better to refinance with your current lender.

Avoid Financial Penalties

Your current lender will charge you penalties to exit your existing mortgage loan. You will essentially be prepaying the loan when you take a second mortgage. You will be assessed prepayment fees based on how many payments are left on your existing loan. This occurs because of the way most mortgages are structured. The payments you make in the beginning of a loan go mostly toward interest, and your principal sum is not greatly reduced. Later in the loan, more of your funds will go toward your principal. You have to settle the principal before you leave the loan contract. Therefore, the longer you hold a loan, the lower the prepayment fee will be.

Avoid Credit Penalties

Lenders do not like it when you close your loan early, because they lose expected profits. As a result, lenders will try to convince you not to leave the loan by creating disincentives. Once of those disincentives is a drop in your credit score. A lender will report to the credit bureaus that you have closed your loan prior to the expiration of your contract. While the loan will be officially closed, your score will reflect the closing was not satisfactory to the lender. Future lenders will see this black mark.

Save on Paperwork

When you seek a new loan from a third party to refinance your mortgage, you have to go through the entire loan application process from top to bottom. With your current lender, you do not need to go to these lengths. The lender will provide you with less paperwork to file for your refinancing request. If you are refinancing due to hardship, meaning you cannot afford your loans because of an emergency, you may even be able to simply amend your existing contract with the lender. Saving on hassle is key when it comes to refinancing, which can already be a difficult process to close.

Save on Closing Costs

When you refinance through a third party, you are essentially taking a whole new mortgage loan. This means you will have to pay closing costs like those you paid on your initial mortgage. These costs can add up, and the new loan may not actually save you money in the long run. Your current lender will not have to charge additional closing costs. You may have a one time origination fee to cover the cost of speaking with your loan agent. Beyond this fee, the current lender will offer you great savings over going to a third party.

 

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