Beware of the “free” mortgage refinance from your existing lender

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by ATLSpartan

My lender has been mailing me fairly often as of recent about how they want to refinance my loan – so I figured I would make the call and inquire given rates have dropped. After a short and simple introduction, they said I was a good customer and that they wanted to keep me as a customer and were willing to lower the rate by about 0.4% -which they promised would save $175 a month. No closing costs, no appraisals, no work on my behalf other than the paperwork – sounds good, but I asked for it in writing to verify.

I keep track of all my loan amounts with an excel based amortization table, since I sometimes pay a little extra to hopefully pay off the loan by my planned retirement age. After trying to get their figures to work, the file kept showing a balance on their new loan when i expected it to be paid off. Turns out that instead of just knocking down the rate, they also wanted to recast the loan into a 25 year loan vs. my roughly 21 years left on my existing loan, adding 54 payments.

Net net over the life of the loan, their offer was actually in favor of the lender by about $7500 vs. my existing loan. Yes, it might be nice for cash flow if my goal was to invest the rest, but not quite the “good customer” perk they made it out to be. If you get one of these, get the terms and do the math.

Disclaimer: This is a guest post and it doesn’t necessarily represent the views of IWB.

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