Is it Wise or Smart to Refinance With the Same Company or Bank?

Refinancing with your current lender may reap several financial benefits.

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Refinancing your mortgage loan is a perfect way to reduce your current mortgage rate and save money each month. A refinanced mortgage creates a new home loan with new terms. You can extend the length of your mortgage, reduce the length of your mortgage or apply for a different type of loan. There is no rule that says you have to refinance with your current lender. In fact, many homeowners refinance with a different mortgage company. But before skipping out on your present bank, consider the benefits of refinancing with the same company or bank.

Better Mortgage Rate

Refinancing with the same company or bank is one way to keep your mortgage rate low. Mortgage lenders want to retain customers. If you're rate shopping for a mortgage refinance, and another bank offers a favorable rate, your current lender may beat the competitor's offer to keep you as a customer. The lower your mortgage interest rate, the lower your monthly home loan payment. But qualifying for a low-rate mortgage refinance depends mainly on your credit score. You can qualify for a refinancing with a minimum credit score of 680, but for the lowest interest rate, you need a score of 740 or higher.

Fewer Closing Costs

Closing costs are an expensive and unpleasant aspect of applying for a new mortgage loan. These costs amount to between 3 and 5 percent of the mortgage loan balance. Many lenders allow borrowers to roll closing costs into a refinanced loan, which can alleviate or lower any out-of-pocket expense. However, rolling the closing costs into the mortgage increases the mortgage balance. If you're looking for a way to lower or eliminate your closing costs, your best possibility of doing that is to refinance with the same company or bank. Closing costs include fees, such as the loan origination, discount points, appraisal, title search and other third-party fees. Refinancing with the same lender may not completely eliminate these fees, but as an incentive, your lender may significantly reduce or waive some of these fees.

Takes Less Time

Refinancing a mortgage loan isn't typically a fast process. Mortgage lenders receive countless applications, and it takes time to determine whether applicants are eligible for financing. It can take, at the very least, 30 days to close on a mortgage refinance. However, the time it takes to close on a loan can be diminished if you refinance with the same company or bank. Title searches and appraisals take time, and both can hold up the loan closing. If your lender waives one or both because of your original loan, this opens the door to a faster closing.

Avoid Prepayment Penalty

Some mortgage loans have a prepayment penalty, which is a fee that lenders charge borrowers for paying off their mortgages before a certain period of time has elapsed. For example, your mortgage lender may charge one to six months' of interest payments if you refinance or sell the house within the first five years. This fee discourages many from refinancing because acquiring a new home loan would involve a huge out-of-pocket expense. Refinancing with the same company or bank is one way to get around the prepayment penalty. While your present mortgage lender isn't obligated to waive this penalty on a refinance, you can ask the company to remove the fee. The mortgage company may comply with your wishes since they're keeping you as a customer.

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About the Author

Valencia Higuera is a freelance writer from Chesapeake, Virginia. She has contributed content to print publications and online publications such as, AOL Travel, and ABC Loan Guide. Higuera primarily works as a personal finance, travel and medical writer. She holds a Bachelor of Arts degree in English/journalism from Old Dominion University.

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