Original lender may be the best source of refinancing
When it comes to refinancing,
there's no time like the present. As mortgage rates continue to
fall, consumers stand to save thousands of dollars on their monthly
payments and interest.
Increased business may mean more of a wait for
the new loan. To avoid problems, experts say people should consider
going to their first mortgage lender when refinancing.
Call first lender first
"Anybody that is in the 8 percent and above range for a 30-year
fixed-rate mortgage should be calling their mortgage lender now
to determine what kind of savings they're going to get," says Dan
Frahm, a spokesman for Norwest Corp., which refinances loans in
all 50 states.
"Many of these lenders that have programs for
their own customers will require no documentation," he adds. "It
is a new mortgage, but clearly they have the majority of the information
already in hand."
Thanks in large part to mortgage rates being
near their lowest levels in 40 years, refinance activity has surged.
That, in turn, focuses attention on the speed and convenience of
the process, where keeping hassles to a minimum often means asking
a lender the right questions.
Among them: Will I save on closing costs because
my appraisal, credit and income information already is on file?
Do you use the automated underwriting systems operated by Fannie
Mae and Freddie Mac? Are there any other special offers you can
give me because I'm a customer already?
The first question is important for people who are satisfied with
their mortgage lender or servicer. Often, the two aren't the same
because lenders routinely use a second company to collect payments
and in other ways maintain the loan. Between the two, a large part
of the borrower's information, normally required in a refinance,
is already on file. And that means the companies don't need to hire
third-party providers to find out more about a borrower's income,
property value and credit history.
"It's much more streamlined for the current
portfolio because we already have the data from the borrower," says
Mark Nieberlein, a senior vice president for retail loan production
at Dallas-based Capstead Mortgage Corp. "There is a limited credit
review, no appraisal necessary ... "
"A borrower's time is saved, and the company's
cost to underwrite the loan is saved, and therefore passed through
to the borrower," Nieberlein says.
closing costs and shop around
Borrowers should consider whether paying slightly more in closing
costs in exchange for a better rate elsewhere would save more money,
however. A $125,000 30-year fixed-rate loan at rates from August
2000 of 8.24 percent resulted in monthly principal and interest
payments of $938 and a total interest paid of $212,754. If refinanced
at 6.90 percent, the monthly principal and interest payment would
be $823 and the total interest paid would be $171,370, saving $115
a month on payments.
A Bankrate.com calculator
can help determine how long it will take to recover the cost of
refinancing. Or borrowers can ask their lenders for amortization
tables on both loans. The tables allow people to check their costs
and remaining balance at any point in the loan. The point at which
the new loan's savings in interest and monthly payments eclipse
the closing costs is the point at which the borrower breaks even.
how they do it
Consumers also should know whether their prospective lender uses
either Freddie Mac's "Loan Prospector" system, or the Fannie Mae
counterpart "Desktop Underwriter," because that can speed the refinance
process. The two quasi-governmental corporations buy mortgages from
lenders in order to package them together for sale to investors
as securities. Together, their systems evaluate a potential borrower's
credit and other application information, and, in some cases, they
can return an answer almost instantly thanks to computerized data
transmission between the agencies and participating lenders.
"It gives a credit decision within two minutes
after all the data are entered," says Freddie Mac spokesman Jeff
"Assume somebody's coming in and we can do a
streamlined refi through the Fannie Mae or Freddie Mac system, it
would save them time and money," says Ed Sensor, chief executive
officer of the Banknorth Group Inc.'s mortgage division.
"The main difference, whether ... they're an
old customer or new one, is if they've had a mortgage they've been
paying on and are a good credit risk, those loans can be approved
very rapidly," says Sensor. The Burlington, Vt.-based company originates
mortgages through seven subsidiary banks in that state, New Hampshire
Of course, customers who return to their first
lender may find special deals that go beyond closing cost reductions.
Sensor says it will modify the rate on a small portion of the loans
it originates and doesn't sell into the secondary market. A good
customer that is seven years into a 15-year fixed-rate mortgage,
for example, might have the mortgage rate dropped by .75 percent
without a closing, appraisal or any of the other hassles associated
with a regular refinance.