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7 Tips for Negotiating Your Refinance


Negotiating Your Refinance

The market has never been better to refinance your mortgage.

Sure, that's a bold statement to make but consider that interest rates are at an all-time low, newly-passed legislation is forcing some of the biggest lenders to help certain borrowers get out of debt, and the economy is showing slow, but steady improvement.

But even with all that good news, it's still hard to get approved for mortgage refinancing.


Because lenders still have very strict standards, and property appraisals are often lower than homeowners anticipated.

So, what can you do to ensure that you approved on your refinance?

1.  Be honest with your lender

If you cannot make your monthly mortgage payment, tell your lender.  Banks don't like foreclosures any more than homeowners do, and they're going to be far more likely to help someone who is honest with them.

2.  Do your homework

Just like when you initially applied for a mortgage loan, bring all necessary paperwork with you -- like pay stubs, tax returns, W2s, credit card bills, and bank statements.   That way, you can speed up the process AND show your lender you're responsible.

3.  Crunch the numbers

If you aren't having trouble paying your mortgage -- and you simply want to take advantage of lower interest rates -- refinancing is a great option.  But it's not perfect for everyone.

Before you go through the refinancing process, see how much it's going to cost you.  Remember, new loans typically include several thousand dollars in closing costs.  Experts say you should only apply for a refinance if you can recoup the closing costs within 18 months.

Also, only accept a refinance if you can improve your interest rate by 0.5% or more.  

4.  Ask a realtor for an estimate

Instead of paying for a formal appraisal, ask a trusted real estate agent to estimate the worth of your house.  It's a cost effective way to determine if it's a smart financial decision for you to refinance.

If you pay for a formal appraisal, it's unlikely that the lender will be able to use that  price in your actual paperwork, so they'll order another one -- meaning, you'll end up paying for two appraisals.

5.  Ask if you qualify for any money from the National Mortgage Settlement

Earlier this year, the Attorney General announced that the federal government and 49 states had joined forces in a settlement with the country's five largest mortgage loan companies.  That settlement totaled $25 billion for distressed borrowers -- including at least $3 billion in refinancing relief.

The hope is that by helping more homeowners obtain a lower interest rate through a refinance, there will be fewer foreclosures in the future.   Your lender will be able to tell you if you qualify, so it never hurts to ask.

6.  Shorten the term of your loan

By shortening the term of your loan, you can save thousands in the end.

If you initially had a 30-year, fixed-rate mortgage, and you've already made five years of payments, ask for either a 25-year or 20-year mortgage this time around.

Yes, your monthly mortgage payment will be higher -- but by paying off your debt sooner, you'll pay less interest over the duration of the loan.

7.  Transfer your assets to a lender

Banks have been stingy in recent years when it comes to approving mortgage refinancing, so try swaying their opinion by becoming a loyal customer.  If you have assets elsewhere, open an account at the institution where you'd like to refinance your mortgage.  By depositing a large sum of money into their bank, it shows you trust them with your financial future.

Bank of America, J.P. Morgan, and even some community banks and credit unions have admitted they give preferential treatment to customers who have assets in their bank.  After all, if they can clearly see your entire financial portfolio, they consider you less of a lending risk!


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