Banks have been eager to help the masses with their refinancing needs. In some cases, banks are looking to avoid delinquency on the part of borrowers who took out subprime mortgages—most banks are back in the black, and happy to stay there. With many prime borrowers, banks stand to make a lot of money on the fees and terms of a new refinance. Here are a few bank refinancing practices to consider:
1.) Extremely generous rates are reserved for prime borrowers
Consider them the prime cut of the meat: they are the 10% of borrowers who have always maintained an exceptional credit rating and are not beset by any pressing financial hardship. Banks reserve the truly ‘ultra-low’ refinance rates for these exceptional borrowers.
2.) There is no such thing as a ‘no-cost’ refinance
When lenders say it will cost you nothing to refinance, they mean no upfront costs. Instead, a lender will repackage the terms of your loan with this cost included. The fees associated with a refinance that you usually pay upfront are now subject to interest as they are stacked on the principal. You can expect to pay twice as much, with accrued interest, on the associated processing fees of ‘no-cost’ mortgage refinancing.
3.) If possible, compare the closing costs of this mortgage with those from your previous one
This is a standard way to force banks into accountable and standardized refinancing practices and it will likely save you money. Look at the closing costs from your previous mortgage (granted you got a good deal) and be sure they are consistent with your new one. If there are any glaring inconsistencies, contact your lender. These closing fees are negotiable, and many can and should be covered by the bank. If they flatly refuse, ask that they pull your file and take your business elsewhere. They may come running back at such a gesture.