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Over the past few years, mortgage rates have been falling, falling, falling… Just when you think they can’t go any lower, they do. During this time, a huge number of people have refinanced. And many have refinanced again. And again.
While refinancing your mortgage isn’t a terribly hard thing to do, it’s enough of a hassle that some people that really should be doing it don’t bother. This is a potentially costly mistake.
But guess what? You don’t necessarily have to do a full-scale refinance to get a better rate. Instead, you may be able to get your lender to reduce your mortgage rate, thereby reducing your monthly obligation and/or allowing you to pay it off even faster.
NCN and his wife have been considering a refinance as rates are significantly lower than they were three years ago when they bought their home. However, they didn’t want to deal with all the paperwork, they didn’t want to start over with a new 15 year mortgage, and they didn’t want to pay a bunch of closing costs.
Inspired by our earlier article on recast your mortgage, he decided to contact his lender and ask if they could reduce his rate without changing the other terms of his mortgage. Amazingly, they agreed, and he had a new offer shortly thereafter.
I’ve heard of this happening quite often with distressed loans (wherein the rate is adjusted to help the borrower stay afloat) but it’s less common for borrowers who are in good standing. Apparently the lender decided that it was better to give up a bit of interest income to retain NCN as a reliable customer.
The change required filling out just a few documents and, while there was a processing fee involved, they’ll earn that money back based on interest savings within just seven months. Going forward, they’ll continue making their “old” payment with the difference being applied as an extra payment toward principal.
While you may only be able to pull this off if your loan servicer actually owns your mortgage (and many don’t) it can’t hurt to ask. The worst they can do is say “no” but, on the upside, you might wind up saving a ton.
Note that you might still be better off with a refinance as you can play the field and get the best mortgage rates available — perhaps lower than your current lender will offer (assuming they’re willing to play ball). But if you’d rather not go to that trouble, you should at least consider asking your lender for a better deal.