How to Refinance Real Estate with a Different Lender
04 18 2017
No matter which type of home you live in, chances are you’ve had conversations about refinancing your mortgage. After all, it’s smart discourse to have. An interest rate decrease of even just a few basis points can add up to tens of thousands of dollars saved over the course of your 15- or 20-year mortgage. No matter how much you love your dwelling, your mortgage payments must make financial sense.
At a glance, it may not seem like there’s a benefit for commercial real estate investment-minded individuals to understand the commercial real estate refinancing process – after all, you’re not refinancing. However, the factors that impact commercial real estate borrowing and refinancing also impact commercial real estate lending. So today, let’s take a second and look at some tips from the borrower’s perspective, and what investors can learn.
Refinancing Real Estate to Lower Interest Rates
The Federal Reserve Bank hiked interest rates in March, and are likely to again in 2017. Each time the Fed hikes rates, borrowers are likely to pay more for a mortgage, especially if they have an adjustable rate mortgage.
For perspective, if you have a $400,000 mortgage, a 50 basis points (half of one percent) rise in interest will cost you about $40,000 or more over the next 30 years. To those who are considering refinancing their real estate before rates climb too much higher, the prospect of locking in a lower interest rate is an attractive one, and many traditional lenders such as banks are likely to see an influx.
The economy and the real estate market are interconnected, so whether you’re a lender or an investor, it’s always good to keep an eye on cues from organizations like the Fed to get an impression of the economy at large.
Refinancing Real Estate for Other Goals
There are several other good reasons borrowers search for refinancing, including accessing cash for a major purchase, or consolidating debts, especially those with higher interest rates. The U.S. Bank National Association suggests borrowers first ask themselves why they’re going through the process of refinancing – setting goals – before taking the steps to actually refinance their mortgages.
Borrowers must prioritize their goals and identify what they’re hoping to accomplish with their refinance. From here, borrowers must determine what their refinance should achieve – this can help them settle on lender and even term length. Depending on your goals with the property, locking in a lower interest rate may not help if the new lender charges points or a loan origination fee. While you may be able to wrap some of your refinancing costs into your new loan, any fees you don’t pay out of pocket can drive up your loan balance.
You don’t have to be a borrower to take away a lesson – even in lending and investing, it’s crucial to set priorities. These priorities you set will help dictate the kinds of real estate opportunities you value, and avenues you take, on your path to wealth.
Do Borrowers Always Switch Lenders?
Sticking with your current lending when considering a re-fi doesn’t always seem to make much sense, especially in a world where the loan originator typically isn't the loan servicer, and the loan servicer doesn't actually own the home loan. Then, an individual needs to compare the loans to decide which is likely to provide you with the lowest total interest expense and closing costs – these can add up.
Mortgage lenders want to retain customers, so if another bank offers a favorable rate, a lender may attempt to beat the competitor’s offer. Sometimes, the best way for a borrower to keep a low mortgage rate is to refinance with the same bank or company.
The underscoring lesson for those looking to invest in real estate is that there is a benefit in finding and maintaining strong relationships. While the benefit of getting more favorable terms on a loan doesn’t apply to individuals looking to invest in real estate, never underestimate the good that can come from developing a strong, reliable bond with your financial advisor.
Tightening Underwriting Standards: What Do They Mean?
But what if you’re denied refinancing? Qualifying for a low-rate mortgage refinance depends mainly on your credit score. You can qualify for a refinancing with a minimum credit score of 680, but for the lowest interest rate, you need a score of 740 or higher.
Of course, if a borrower is denied a re-fi of their mortgage, they can always try a different lender, since not all lenders have the same underwriting guidelines. The truth of the matter is that banks are increasingly tightening their underwriting standards with lending, making alternative methods of financing increasingly popular.
For investors, the takeaway lesson is that the commercial real estate landscape is always changing, year by year and quarter by quarter.
Refinancing Real Estate with a Different Lender
You may have experienced the refinancing process with a real estate property before, or perhaps this was your first foray into the subject. Either way, you should always discuss your outlook with your financial advisor. However, as wealth-minded individuals, there’s inherent value in understanding how the other side of the borrower-lender relationship works – regardless of your personal financial goals.
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