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Lower the Interest Rate on Your Mortgage Without Refinancing?

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On my trip to Boston a couple of weeks ago, I met up with a couple of my best friends from college. One is probably more into personal finance than me - but he's just not the blogging type. He can dazzle with Excel and Quicken and probably could tell you exactly how much money he has to the penny with a single click. The other friend is a lawyer specializing in real estate. When I closed on my condo purchase, he was the guy I went to and it was smooth sailing.

Somehow, we got onto topics of the economy. We gabbed about the sub-prime crisis. They thought that the mortgage holders were to blame because it's their responsibility to know what they can afford and not get sucked in a mortgage lender/salesman. I took a different view and thought it was the mortgage lender, because they are expert trying to explain a topic that most people are unfamiliar with (mortgages) and pushing them into more complex vehicles with escalating interest rates. The answer is that it's probably a combination of the the two. It's almost like a homerun in baseball, sometimes the hitter does a tremendous job of hitting a good pitch and sometimes the pitcher does a lousy job of pitching the ball making the hitter's job easy... and there's a lot of homeruns that fall in between those extremes.

We also got on the topic of mortgage rates. They are historically extremely low right now. I lamented that I couldn't take advantage of the low rates. I had lost a lot of the equity on my home and if I tried to refinance I wouldn't have the 20% down that mortgage lenders like to see - especially in this market. I am also self-employed (with a less than impressive income) which probably doesn't make them light up with joy. Lastly, since I moved to California and now rent the Boston condo, it's not owner-occupied - yet another thing that banks would like to see. That's three pretty decent strikes against me if I'm looking to lower my rate from 5.875% to some of the 4.875% rates available today.

My lawyer/real estate guru friend told me the solution was simple. He asked me if I came up as self-employed or unemployed on credit reports (I admit that I don't know this). He said that if I showed up as unemployed, it would be very easy to get a lower rate. I could simply call up the lender and tell them that the ecomony is bad and ask if they could lower the rate - no refinance or paperwork necessary. The theory is that lenders would rather give you a lower rate than risk not getting paid and having to deal yet another foreclosure.

What do you think? I think it sounds plausible and my source is rock solid. Still something sounds almost a little too good be true. Is this possible? Has anyone out there been in a similar situation and tried it?

Last updated on February 2, 2009.

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37 Responses to “Lower the Interest Rate on Your Mortgage Without Refinancing?”

  1. Chef says:

    Come on – you signed on the dotted line for the rate. Plus, there’s karma. You might never be jobless and needing to get a rate reduction, but you’ll be in a jam and need a hand from someone and no one will be there to give it to you. Remember the boy who cried wolf.

    OK, maybe it’s not that extreme, and the mortgage industry resembles pure evil, so call em up and see what you can get.

  2. You don’t need to say you’re unemployed, just say you’re looking into refinancing which is true. Hopefully, they’ll offer you a better rate to keep your mortgage. Jonathan at My Money Blog was able to get his bnnk to reduce his mortgage rate from 5.625% to 5.125% just by asking.

  3. Lazy Man says:

    Chef,

    I agree with you to some extent. However there are a lot of people that signed on dotted lines. Many of them are taking their 50 Million parachute and leaving. Another bunch got in worse mortgages and will end up better off than I will. I have a problem with the rewards going to those who didn’t do the right thing. That’s not to say that I aspire to the level of ethics that some of the people had in sub-prime mortgage scandal.

    However, if you look at my adjusted gross income for the year, it’s probably going to be less than $25,000 – and that’s in one of the highest costs of living in America – Silicon Valley. The property that I bought in 2004 has lost about $50,000. When the current lease expires, I won’t be able to rent it for as much because people would just buy their own place with the new lower rates and the 20% off they are getting from what I bought. My point of all this is that it’s not like I’m living like a rockstar and trying to squeeze money out of banks that are already in trouble. I’m not exactly crying wolf.

  4. Jim says:

    The worst they can do is say no.

    I think its very plausible that they’d drop your rate if they thought they’d lose you. Your current interest of 5.875 is easily beatable with a refinance so I’m sure they know they might lose you. So they might be happy to meet you half way and drop you to 5.3%. That way they keep your business and still get .5% higher than going interest rates. Or maybe not, it will of course depend on the bank and how interested they are in keeping your loan with you.

    Around 10 ago I had a higher rate loan in the 8% range that I got when rates were higher. Then rates started dropping into the 6%. Wells Fargo offered to refinance me down to 7% for free. They knew I’d probably leave them at 8% but if they kept me at 7% I’d save on closing and not have to lift a finger and they’d keep a customer paying 1% higher than market. Since then I refinanced to 4.75%.

    Jim

  5. Michelle says:

    It could be possible but I think it depends on the lender. I’m self employed and my income has dropped significantly in the last 6-8 months. We have tried calling our lender (GMAC) to ask them if we can negotiate our rates because of my loss of income. Because our home has lost value they won’t refinance us. We don’t have 20% equity in the home. It’s very frustrating. They actually told us there is nothing they can do until we are at least 30 days late. Of course then our credit will be ruined. We told them that if we go late, the house will be theirs. You can read about our story (it’s just starte) on http://www.watchusforeclose.com We are not late yet but probably will only be able to make one more payment before we have to. Have spent all of our savings to stay current but refuse to run up credit cards.

  6. B Simple says:

    Yes, calling your mortgage to lower your rate is possible. Especially in this market, with mortgage rate dipping a lot of people are refinancing their mortgage. But instead of refinancing you should talk with your current mortgage company to see if they would lower your rate. Some will do it at no charge and some may charge a fee. But the fee would be cheaper than refinancing with closing cost. So call your mortgage company to see what their willing to do.

  7. Neal Hawes says:

    Contact your current mortgage holder & ask for a rate reduction. My current holder (Wells Fargo) has an on-line calculator for their current customers. I could drop a full point (6.5% to 5.5%) with them, but I passed and locked in 4.25% + 1.25 points (about $2500) w/ Quickenloans. I’ll recoup the points ($2500) in 11 months (I’m saving $244 per month by refinancing). I could have had 4.875% + .25 point ($500), but I’m not planning on moving & I REALLY wanted the 4.5% rate. We should never have to finance again (unless it gets to below 4%, then I’ll have to run the numbers). IT DOESN’T HURT TO ASK! Surprising enough, they accepted the Zillow value on my house, & only did a “drive by” appraisal.

  8. I did this very thing about three months ago and my bank was happy to lower my rate. i didn’t try to mislead or prevaricate, I just wrote a letter to one of the bank vice-presidents (small local bank) and said how much I wanted to keep my business local and hoped they would help me. They agreed and my mortgage payment dropped $150 a month. No real paperwork, no cost. Very easy, very effective. There is no downside to giving it a try.

  9. CC says:

    Theoretically possible-yes; probable; no. Why? The people that handle your mortgage (your lender) are not normally the people that ‘own’ the mortgage. It is likely that your ‘bank’ only services the mortgage (sends out notices and receives payments for a fee) and does not have the authority to modify the terms of the original agreement. Unless your bank keeps the mortgages in their own portfolio, it would be unlikely that a mere phone call would accomplish a reduction in your APR.

  10. Meg says:

    As a banker, I have never heard of this and there is no way in hell we could or would ever drop somebody’s rate just because they asked. Now if the loan was in default and was sent to Special Assets they might lower the rate as part of the negotiation instead of foreclosing. But we don’t have the power to just change rates like credit card companies do.

    There is a Promissory Note that is signed – if we waive certain parts of that (including the rate) – then borrowers could argue in court that we essentially waived other provisions. From a liability standpoint this would never be considered.

  11. Matt SF says:

    Can’t say I approve of the ethics, but if can use the fine print to your advantage, more power to you.

    Let us know how it works out (if you can)!

  12. Slacker says:

    Hey Lazy Man,

    I’m in a similar situation and my wife and I are holding out till the market gets better. It could be a lot worse, at that interest rate your inflation adjusted interest is probably closer to 1-2%, not all that bad if you think about it. I know it is rough right now, but the market will come back and at that time you can decide if you want to bail out or ride the next bubble and make some cash.

  13. Camille says:

    I don’t know if it is standard practice, but it is ALWAYS a good idea to call your existing creditor (or service provider or phone company) and ask for a better rate.

    The reaction to the hard economy is a moving target. Companies are adjusting their practices all the time. I’d say go for it.

  14. NewHorizon says:

    Regarding lazyman’s January 29th, 2009 at 3:34 pm comment above: I’ll try to stay away from either condoning or condemning what you’re trying to do. But the way your comment came across, it seems like you’re allowing the line between right and wrong to be drawn by what’s going on with other people, and/or by the health of your finances.

    I hope that’s not truly the case.

  15. Lazy Man says:

    If you found your company beat it’s profit forecasts soundly year after year, wouldn’t you bring up the question of a raise to your boss? I know I would. Environmental circumstances have changed since when my salary was determined and I don’t see a problem with asking if a correction should be made.

    Keep in mind the topic here is simply asking my mortgage company a question. I will answer any questions they have truthfully. Is there harm by asking? I don’t see how there’s a line between right and wrong there.

    If it’s not fair, the mortgage company can simply say no. We both hang up the phone amicably and move on.

  16. Angiejo says:

    Why should a rate reduction go only to those with a financial hardship? I would think any mortgage lender would grant a rate reduction rather than see a customer with a good credit rating and payment history refiance with a competitor. I’m going for it as we speak.

  17. Lazy Man says:

    I think you have to think like a mortgage lender. If someone is going to pay me, I’m happy. If someone is not going to be able to pay me, I might make a deal to make sure I get some payment.

    I’m not saying it’s fair or right, but it seems like a practical matter matter to me.

  18. calfly says:

    When I was still employed I called my current mortgage company and inquired about refinancing (I have 5yr arm at 5.25% that will readjust in June). We started the paperwork, I was approved for 4.8%. Well since the process was underway, appraisal done, etc.. I lost my job. The loan officer called me today to say we could schedule the closing next week after she verifies my employment by phone tomorrow. I froze and didn’t know what to say, except ok. Now I’m not sure if this will go thru or not. Anyone have a crystal ball to tell me what I should expect next?????

  19. Stephanie says:

    When I bought my home, my credit rating was less than perfect. This was based on a number of factors, some within my cotrol, but also some that were not in my control.

    My current interest rate is 6.5%. My current payments are about $960 a month. I have them taken directly out of my checking account in weekly installments. This allows me to make one extra mortgage payment over the course of a year that goes directly to my principle. I also add on ten extra dollars per week. I know that doesn’t soun like much, but with 52 weeks in a year, it adds up to an extra $500 going straight to the principle.

    In my opinion, I think that the banks should be willing to work with people like me, not just people that are defaulting on their loans and facing foreclosure. I may be paying my bills on time, but I still could benefit greatly from a lower interest rate. I mean, just because paying my mortgage is top on my priority, and it will always get paid first, that doesn’t mean that I don’t struggle just to buy groceries.

    I don’t know if I would qualify for a lower interest rate. I have no credit card debt (just paid them all off), but I still have some medical debts that are weighing me down. I may call and check with Wells Fargo and see what they have to say. I guess it coudn’t hurt!

  20. Al says:

    I have a mortgage with EMC that has a 9.5% interest rate. I nearly lost my home twice. I now have a credit score of 670 and have made payments on time for 18 months. I asked them to refinance after 12 months and was declined. Not only am I paying on time but I am paying the high interest rate on a school teachers salary. I have also gone through 2 hurricanes in Louisiana. Chase bank has taken over EMC and was the bank that declined my refinance request. My home has increased in value and has about $100,000 equity. I don’t know what to do now except keep paying until my credit score increases so I can refinance with another lender.

  21. John Boy says:

    Well, I’m trying to get my interest rate lowered myself and trying to learn how to do this without re-financing and very appreciative of the discussion on the internet.

    I would like to add that I agree that the current situation is a lot like a homerun (I was a pitcher back in my golden years). I do believe that when we sign on the dotted line we seal our own fate and it’s up to each individual to negotiate their situation. We cannot place the blame entirely on the banks. We must exercise common sense and judgement with regards to budgets. We must not let greed get in the way of reality. We must anticipate that there will be bad times and consider all worst case scenarios. These are the things that some of the most successful people in the world do on a daily basis.

    If you walk into a bank and believe everything they put in front of you and don’t ask questions, then you’d might as well just watch every pitch go buy abd pray that you get 4 called balls before you get 3 called strikes!!!

  22. Angie says:

    Lazy Man,

    I’m in THAT exact situation. Lost my job in June of 08, been making all my payments on time and have good credit. Being as times are tough (and getting tougher day by day) I contacted Countrywide Mortgage to see about having my interest rate adjusted so I could continue paying them for a few months longer (I’m hoping to be employed soon!). I was told by them and I quote “when you’re hardship is resolved then contact us and we’ll help you”.
    Hell, I even asked them if they were hiring!
    Well, when my hardship is resolved I’ll be leaving their asses and not looking back!! THANKS Countrywide for your help in my time of need…me and my 2 children appreciate it!!!

  23. The Truth says:

    In case you all have not figured it out, the credit agencies have alot of fault in all of this. They don’t answer to anyone and are not regulated at all. Sure- you may think they are, but they aren’t. Think back to all of our situations and struggles and think how our credit comes into play…..

  24. beebo says:

    i called up my lender and they lowered my interest rate drastically(by 3.5 %) for 5 years and then a 1.5 % drop for the rest of the life of the loan

  25. patrick says:

    Never trust a banker ,they are eust to being in the drivers seat and only keep enough money in the instution to pay your mortgage as they can snatch additional money if you default or are linked to a mortgage of someone else i.e x patner or sibling ,banks keep us ignorent of the facts and take advantage of our emotion of buying our first home.I believe in limiting my banks hand so as to have a fair game of poker let’s face it we are making money for the bank and while we make take 100% loss a bank has the ability to spread it’s loss on it’s portfolio and the fed’s can also step in to bail it out not so for an investor ,so yes bank’s will negotiate on your loan if it is a community bank even better.

  26. Jay says:

    I’m shocked by all the talk of “ethics” and doing what is right vs. wrong. As the “little man”, I’ve been at the short end of every financial stick of which I’ve been a part my whole life. I bought stocks manipulated by every wall street tycoon (at their significant benefit) and I lost almost $70,000 in the late 90’s.

    When I made money, the government took their “30% no-risk” tax benefit. Since I had a stock loss, the government allows me only a $3,000 tax loss carryover. I am STILL carrying over about $40,000 in stock losses fully 10 years later! All a sham, crime, whatever you call it. When Wall Street was fined hundreds of millions for their improprieties during that time, I did not see a DIME of that money!

    Fast forward 7 years to when I purchased a townhome for $260k. Yes, I signed and it was my choice. The builders pumped up the price of the units and when the market tanked, they did and continue to sell units for about $160k, almost $100k less then what I paid just 3 years ago. And the banks in the mean time made hundres of millions of dollars on these risky loads (thank God I did not do an ARM rate they tried to push me into!)

    So, I have NO problem calling the mortgage company and asking them to drop my rate 1.5 points. Really, they will still make hundreds of thousands of dollars over the course of the load. They still borrow money at 1.5% and lend it for 6. I have a 6.125 80% loan and an 8.9% 20% 15-year loan (I had no money down and am now in a neg equity situation) and will ask them to roll it all into a 5.5% 30 year loan and if they don’t, I’ll walk away from a home I have neg equity of $70k…and I’ll sleep well. I have no problem sticking the Man because I’ve been stuck time and time again. Chew on that for a while…

  27. Vicki says:

    I use Aurora Loan Services, and they have denied us twice. I am self employed, have never missed a payment or been late and have a 707 beacon score. I am currently paying 7% interest on a 5/1 ARM and they will not budge. Any advice

  28. Bob says:

    I am in a similar situation on investment property. We have had the property for 6 years and have never been late on any payments. We enjoy good credit and are honest hard working people.

    We have been hurt by the current economy and two bad tenants, back to back. I also suffered a massive heart attack several months ago. We have had to spend thousands of dollars to fix what the tenants have destroyed. We have not only maintaned the property for our own benefit but also out of an obligation to protect the banks collateral interest (read your mortgage).

    I think that the question is not entirely about ethics but also about a financial decision. I enjoyed the one comment about playing by the rules. I too believe in playing by the rules. The problem is Wall Street and the banks keep changing the rules.

    It appears that the rules the banks want us to play by are not the same rules they want to held to. They expect us to continue to meet our obligation, no matter what our situation or unforeseen changes. Shouldn’t we hold them to the same standards?

    As soon as the banks had their own financial woes, the rules changed. They had no problems making a business (financial) decision to default on their obligations. In doing so they effectively held us hostage and said “bail us out or else” Although I am not in favor of the bailout, I do understand that the alternatives could have been worse.

    I see no ethical problem in playing by the same rules that they have established. I do not mean that we should fabricate a hardship situation but if it is real, why shouldn’t we ask for help or some relief…they did.

    The banks did not consider their ethical obligations and I do not see any of the CEO’s, who made billions, returning the money. They have established the rules and I think it is fair to play by the rules as established.

    None of the bankers, brokers or insurers risked their own personal financial wellbeing. I think it is time for all of us to say, “Hey! you made the rules” “My financial wellbeing is at stake, help me or else” To jeopardize your own and your families wellbeing to satisfy some perceived ethical dilemma is exactly what the banks are counting on.

    If you wind up broke and on the street, do you think the banks will consider their moral obligations to this country or their customers?

    The bottom line is all they are concerned with. I think we should play by the rules that they have established. Your decision should also be your bottom line. It is not an ethical question but a financial decision

    There were some comments about signing on the dotted line and being responsible for our own decisions. I agree, however, the banks also signed on the dotted line and made promises to their investors and customers. Why is it that their default on their promises is o.k. but ours becomes unethical. Rules is rules folks. I for one have no problem playing by the rules as long as we are all playing by the same rules.

  29. NewHorizon says:

    Commenter Bob wrote, “It appears that the rules the banks want us to play by are not the same rules they want to held to. They expect us to continue to meet our obligation, no matter what our situation or unforeseen changes. Shouldn’t we hold them to the same standards?”

    If I had my back to the wall like you did, I might be more inclined to agree with you.

    But I think you’re blurring the line between the rules set by others, and the ethics set by yourself. True, the banks set the rules, but they don’t change who I am in terms of morals, ethics, and character. To allow the banks to do so – as they’ve done with you and many others – is just another huge tragedy in this whole economic crisis, imho.

    If you’re of a mind to ‘Do unto others as they have done to you,’ then I hope it brings you peace. But that’s just not the way my mama raised me.

  30. Jami says:

    I was just at the bank today to refinance, and the lady told me to try and do that first, because it is very common that we will lower it for you.

  31. don says:

    Ethics does not play a role here and anyone who says otherwise didn’t pay attention in business school. This is my advice for anyone currently upside down in their mortgage: A mortgage is a contract and contracts are negotiable. I’ll let you all in on a little secret: when interest rates drop, the price of lending goes down and the bank is actually making a higher profit margin than they were when they originally wrote your loan. Now, if you’re in a bad investment such as a home worth 140000 that you paid 250000 for, the bank will try to tell you that you can’t refinance because you don’t have equity. You’re not going to get anywhere until you realize that your underwater mortgage is actually LEVERAGE. You have all of the leverage in this negotiation because only you can turn the tables and place the bank in the exact same situatuin you are in: stuck with a house that’s not worth anywhere near what they paid for it. The last thing the bank wants is for you to give the house back. With the price of lending at an all time low, the bank is already getting a sweet deal so there is no reason they can’t pass on some of the savings. For all of you values people out there, I submit that the word renegotiate is in the english language for a reason. Use it. The key is letting the bank know that you know how the game works, letting them know that YOU know that their cost of lending has gone down, and making it clear that you don’t want to give up on your investment, but are willing to do so if they can’t share the benefit of lower lending costs with a lower rate. Companies raise your insurance, power, water, cable, phone rates all the time without even asking, there’s nothing wrong with reevaluating what things are worth and re-negotiating. And for the record, I recently dropped my mortgage rate from 6.5 to 4.5 percent using the advice I am giving here. Just be respectful and firm and make it clear that you understand what’s going on. The worst they can say is no but if they are smart they will work woth you

  32. yolanda reed says:

    I have been with emc mortgage for six years and the last three i have not gotten any help with my 13percent interest rate on my morgage. i need help bad i have start talking money from my saving. i love my house and i dont want to lose it so if anyone can help me i will be grateful for it.

  33. Conflagration2100 says:

    I tried it and it didn’t work for me. After I lost my job i immediately contacted my mortgage lender and set up a meeting to talk about lowering my interest and or payment temporarily.
    They were as cold and unresponsive as an “Ice Berg”, unmoved by my desire to continue to at least pay them when I could have easily defaulted. Even when I entered a Government sponsored program designed to reduce the interest rate without refinancing, they denied every single request with complex replies which indicated I didn’t Qualify and finally, they simply flat-out refused with an unequivocal “NO”. after all of that, I managed to make my payments UN-delayed and without fail. I’m back on my old job again, but all during that time, the only word I could use to describe their lack of empathy, uncaring, remorseless attitude was “Psychopathy”, pure and simple, take it or leave it.

  34. Roger says:

    What everyone conveniently forgets is that the Banks make huge profits on Mortgages and they AGREE to accept the property as collateral. These signatures on the DOTTED LINE go both directions.
    If the bank evaluated the risk and took the risk… They are guaranteed the collateral.
    To suggest that the home buyer is responsible for economic conditions in America and the Bank is some how immune from the fall-out is Phycobabble on a Grand scale. We are all subject to the pain and sugffering of the collapse – and nobody should be made to carry both sides of the down-turn.
    You likely have losty youe equity, down payment, improvement costs and taken a huge hit. If the bank agreed that the collateral was good for the note – SO BE IT!

  35. Gigi says:

    The thing that I find interesting is that this post has been going on for about 3-1/2 years and the hardships of the country, the economy, and people are still present. It is never wise to throw a stone at a glass house… meaning it is easy to call someone out when that may not be your exact situation. However, if your situation boiled down to desparation and working to save your home for your family you would like consider “ethical and unethical” behaviors. The true test is how you respond… This is what really identifies your character. My heart goes out to those that are losing their homes/their foundations/their dreams. However, God will provide if you trust in HIM. You may not be a believer and that is your freedom to make that choice but I do believe in the greater good of people. And even the underdog will have a time to rise and shine. If you are facing a financial hardship (or even if you are not) try making a budget for yourself — write it down, trust me this works. If you write down your expenses (so you have a visual) and truly evaluate what your NEEDS are versus your WANTS you can identify what your bottom line is. Next write down your income (if you don’t have an income at this time – just write down what you need to survive). This helps to put things into perspective. I write this information down and post this up so that I know what goal I am working towards. Don’t forget to pay tithes – this is perhaps the most important financial committment that I have. Personally (and some may not agree) I find that when I am faithful and being a good steward of my finances God is ALWAYS faithful in return by meeting my needs. I don’t drive a brand new car (but I do have a car), I don’t have brand new clothes (but I have clothes), I don’t have steak every night (but I have food)… God knows what our needs out and HE meets every single need that I ever have – things do not always come when I want them but they are always on time. I sincerely hope and pray that everyone that reads this post and the others will be encouraged. If you are still uncertain – try to pray (if you don’t know how to pray just talk to God and let Him know what you need and want). To everyone be very blessed and find an ounce of happiness in every situation or circumstance.

  36. NewHorizon says:

    Right, but there are people who are still living in their homes 3+ years after receiving their NOD (notice of default). Isn’t that – you know – a long time?

    I understand hardships ‘n all (and, btw, not all defaulters are exactly struggling to put food on their table), and I understand about huge bank profits.

    But at what point do we tell these people that they really need to move out of the house? 1 year after NOD? 3 years? 5 years? 10 years???

  37. Jimmy says:

    Here in the real world, getting your lender to “lower the rate – no refinance or paperwork necessary” doesn’t actually happen. Even with a “streamlined, hassle free, no closing costs” refinancing offer, I was deluged with confusing, contradictory paperwork and hidden costs, to the point that the true savings, if any, didn’t justify the hassle and risk.

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