January 1, 2009

Interest reduction as an alternative to refinancing

With mortgage interest rates dropping to very low levels, now is a great time to look into refinancing. As a general rule of thumb, if you can get a 1% drop in your interest rate and you expect to be in the home for at least a few years then refinancing may be a good idea. But what if you can't get 1% drop or you're not sure if you'll be in the home that long? An alternative to refinancing that you might want to consider is to simply ask your current lender for a lower rate.

Its usually in the lenders best interest to keep your business rather than lose you to a refinancing with their competition. And if they simply agree to drop your rate then it can save on closing costs and appraisals.

I myself got a lower rate from Wells Fargo years ago when mortgage rates were dropping significantly. In fact Wells Fargo offered the drop in interest free of charge without me having to do anything really besides resign.

My Money Blog recounts how they got their lender to drop their rate by 0.5% for $500 fee without a refinance.

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