Looking For A New Bank? Three Scenarios That Aren't Worth It


They say that the grass is always greener on the other side of the fence. A cow pastured in sight of an alluring swath of delectable lawn may find this statement accurate, but it doesn’t hold true in mortgage banking. In fact, if you’re considering a home loan refinance, taking your business to a new bank may not be worth it.

It’s Not Worth It If … You Have an FHA Mortgage

If you’re refinancing a Federal Housing Administration (FHA) mortgage, the streamline program is likely your best option. It applies to homeowners who are current on their payments for their FHA loans originated on or before May 31, 2009. The process doesn’t require an appraisal, which can save you hundreds of dollars, and means that you’re eligible even if you’re underwater on your loan. The administration has recently reduced the fees, as well. The upfront mortgage insurance premium is a mere 0.01 percent of the loan balance, while the annual mortgage insurance premium stands at 0.55 percent. According to the Federal Housing Administration (FHA), these fee reductions will save most FHA borrowers $1,000 each year, not including additional savings that result from refinancing into a lower interest rate. However, in order to realize these benefits, you’ll probably need to stick with your current bank. In June, Wells Fargo, Bank of America, and JPMorgan Chase all stated that they would only refinance their current customers through the streamline program.

SEE ALSO: Locating a Bank for an FHA Streamline Refinance

It’s Not Worth It If … You Plan To Use HARP

If you’re refinancing a home loan purchased or guaranteed by Fannie Mae or Freddie Mac on or before May 31, 2009, and you have less than 20 percent equity in your property, the Home Affordable Refinance Program (HARP) is for you. You must be current on your mortgage and have a good payment history, with no more than one late submission more than six months ago. According to data from Freddie Mac, HARP refinances save homeowners an average of $125 to $150 a month, thanks to lower rates. However, as with the FHA streamline program, most big banks are only accepting HARP applications from their own customers. True, they face enormous processing backlogs due to historically low interest rates and a boom in HARP 2.0 interest, but experts speculate that most banks feel that taking on new underwater and low-equity borrowers is too much of a risk. To reap the benefits of the program, you’ll likely need to approach your current lender.

It’s Not Worth It If … You Want The Best Deal

If you’re not underwater, have adequate equity, or don’t qualify for the FHA or HARP program, the grass may still be greener on your own side of the fence. Refinancing through your current bank is usually easier because your lender knows your mortgage, your payment history, and your finances. It may also be less expensive. For example, if your bank owns and services the loan, they may offer to modify your rate for a minimal change fee, as opposed to requiring a complete refinance. If your bank doesn’t offer you this option, shop around. Then take the lowest rate and fee, and show it to your lender. They may be inclined to match it and waive some settlement costs in order to keep your business.

SEE ALSO: Must Know Facts For Mortgage & Refinancing

Date of original publication:
Updated on: November 10, 2015

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