Question: I realize that a mortgage company has every financial incentive to discourage their customers from refinancing when rates are low….

I do not believe this is correct. Almost all mortgage companies (and banks for that matter) resell the mortgage on the secondary market. They make their profit by a commission up front, and don’t care about the long-term future of interest rates. Touting low interest rates is one way of increasing business. Clearly more people will want to refinance when the interest is comparatively lower than their current rate than when it is comparatively higher. Of course, if a lender promises you a lock and then they screw up and can’t get it honored from their sources of money, then naturally they will want to get out of the deal. Is it a mistake to refinance a home loan with the same lender that holds the current mortgage?

Here are the sad details:

About 2 months ago I chose to refinance my home loan with the lender that holds my current loan, Source 1 Mortgage Company, largely because their agent told me that they probably would not require a new appraisal. They also asked for much less paperwork than my local loan broker. I locked in a very good rate for 45 days. A month ago, the refinance was not yet approved so their agent told me over the phone that she would extend the lock. Unfortunately, I didn’t request that she confirm that in writing. Now she claims that the loan was held up because there was a missing “Deed of Reconveyance”. Furthermore, my lock has expired but they would be happy to lock me in at a rate that is 1/2 point higher. The title agent that handled the original title 5 years ago told me that a missing Deed of Reconveyance is a minor technicality and he has never heard of a loan being held up for this reason.

I realize that a mortgage company has every financial incentive to discourage their customers from refinancing when rates are low. I feel like I was suckered into this deal with the “no appraisal” requirement which would save me about $500. Is there a rule of thumb that it is wise to go with a new lender on a refinance? Is it feasible that a loan company would waive the appraisal requirement on a refinance from an existing customer?

Answer: if a morgage rate is below prevailing rates, who would buy the morgage at face value? Even if a morgage company was fully intending to resell a morgage 1 minute after the deal was closed, it is very much in their interest to have a higher interest rate… the higher the rate, the higher the value of the loan is when they resell it. (just like with bonds) It seems the marketplace favors new deals. But here’s the counter-example: My banker friend tells me that some banking institutions (ones with their eyes open) will rather keep your old loan by refinancing than see your business (cash flow) go elsewhere. Especially if you have you household and business checking accounts at the same bank. This friend did know of a 1% over Prime variable rate second mortgage at his bank. ( I applied and got it) I was a temporary sales promotion prior to the Election. :-) I guess the moral here is: Keeping asking around until you exhaust your patience of find a better deal. Good luck!

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