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?
This post deals with:banks, interest rates, mortgage lender, mortgage lenders, mortgage rates, mortgages, sub prime crisis
... and focuses on:Real Estate
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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.
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.
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.
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
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.
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.
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.
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.
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.
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.
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)!
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.
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.
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.
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.
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.
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.
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?????
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!
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.
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!!!
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!!!
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…..
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
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.
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…