I have had clients who always think, “Let’s get a better deal at all costs”. I had clients who applied for a refinance almost 4 months ago. Interest rates dropped for quite a bit of that time period. It seemed like once a month they were asking me for a better deal than I had originally locked them in at. Getting a better deal is fine. Steamrolling everybody in your path to pick up each 1/8% rate drop is another.
What’s the big deal?
There are many problems created when you continue to switch your loan/lender. First, most banks will not drop the rate from their original lock-in. This means you have to switch to a new lender to get a better deal. That is a problem because each lender will pay hedging fees and commitment fees to lock-in the original loan. When you take the loan elsewhere you are costing the original bank a lot of money. That ultimately will catch up with all of us: the consumer, the mortgage broker, and the bank. Ultimately as banks see higher and higher “runoff” they will price in these losses. People who lock-in and do not close with the first lender will cost everyone higher interest rates. Then we will all pay higher rates as a result of the people that constantly want to switch for a better deal.
Does it create extra costs?
Second, each time you switch to a new lender to get a better deal a new appraisal has to be performed. Each bank will only work with an appraisal done by an appraiser from its own appraisal management company. So when you switch banks you typically cannot take the appraisal from the first bank to the second bank. And spending at least $400 for each appraisal can get expensive.
It increases paperwork?
Third, each time you switch banks you are also redoing paperwork. That gets tedious.
Rates may go up?
Last, you may also find that as you gleefully switch lenders looking for a better deal, you may shoot yourself in the foot. The last client I had that was so focused on every dime, ultimately switched to a lender right as interest rates had popped up. So now we are almost back to square one where rates originally were when we started months ago. And the client has spent two appraisal fees, three months, a few sets of paperwork, and a lot of hassle and emotional stress trying to get a refinance done.
Decide on the loan structure up front
I have another client who started out at one interest rate which we inflated slightly higher to build in the closing costs on a refinance, On the day of settlement they decided to have their financial advisor review the numbers. The advisor decided that they should take a lower interest rate and pay their own closing costs out-of-pocket instead of building them into a higher rate. I had to get the lender to extend the original lock-in to allow for all the changes needed to rework the numbers at the lower rate and the higher closing costs. Unfortunately, by the time we were ready to go to closing the 2nd time, the original appraisal had expired. Then we needed a new appraisal. The client was upset at the thought of spending another $400 for a second appraisal. They shot the messenger, “me”. They decided to go elsewhere for their financing.
There ultimately is a point when you have to stop jumping over $100 bills to get to the quarter in the corner of the room. If you are refinancing and saving good money and are happy with the numbers, carry through with it. Don’t over analyze it. Get your mortgage lender documents as soon as possible. Don’t delay the appraisal. Go to closing ASAP, and be thankful to all parties involved. Don’t attempt to make your transaction perfect to the penny, or get the rock-bottom rate.
The banking industry is an absolute mess right now. It is very difficult to operate at all, let alone efficiently. Go for a good deal, but don’t get too greedy and start making last minute requests or constant demands for a lower rate. You may end up with nothing at all…or something that is not what you expected.