Can I Lower My Mortgage Interest Rate Without Refinancing?

November 16, 2018
Can I Lower My Mortgage Interest Rate Without Refinancing?

Here’s an interesting one. Is it possible to snag a lower mortgage rate without refinancing?

While it’s not all that difficult to refinance a home loan, it does take a bit of time and energy, and you generally need to qualify for the thing.

Not everyone qualifies for a mortgage for one reason or another, and the same goes for refinancing an existing loan.

For example, if your credit score isn’t quite up to snuff, or you don’t have the required income to keep your DTI below key levels, you may not qualify.

This means you might be locked out when it comes to obtaining a lower mortgage interest rate in times when rates are favorable.

Today's Rates

There are also times when it just doesn’t make much sense to refinance because rates are higher or similar to what you’ve already got.

So what are you to do if you can’t or simply don’t want to refinance, but still want a lower rate? Well, there are some options to consider.

Just Call and Request a Lower Rate

While not conventional or at all common, some folks have obtained lower interest rates simply by calling up their mortgage lender and requesting one.

You need to indicate that you have no interest in refinancing with them because otherwise they’ll just take you down that route.

It’s kind of similar to the old credit card trick where you phone up and say, “Hey, I’m sick and tired of paying 20% APR!” Then they put you on hold and come back and tell you congratulations, your rate is now 12%. Still bad, but lower!

Perhaps it won’t be that easy, or anywhere close to it, but sometimes it’s just a matter of being the squeaky wheel if you want a lower interest rate.

Your chances might be better if the originating lender also services your loan (collects your payments each month). And if your existing rate is significantly higher than current rates.

If they believe you’re going to take your business elsewhere, they might be willing to help you out.

Of course, at that point you could be asking yourself why not just refinance to an even lower rate, assuming you’re able to.

Negotiate Directly with Your Loan Servicer or Lender

There are also a number of programs geared toward those who are having trouble making payments each month, or difficulty refinancing via traditional means.

The two notable ones over the past several years have been HAMP and HARP, both of which allowed homeowners to obtain lower mortgage rates via special government programs.

These are being phased out soon, but being replaced by permanent programs set up by the likes of Fannie Mae and Freddie Mac.

There are also proprietary loan modification programs available (guidelines vary by individual lender) that may provide lower interest rates to existing customers.

Again, if you don’t take the time to contact your lender/loan servicer, you won’t know about them.

Take Advantage of a Mortgage Settlement

Thanks to some questionable practices by the big banks and loan servicers during the housing crisis, some lucky homeowners were offered lower mortgage rates as restitution.

A notable mortgage settlement between Bank of America and the U.S. Department of Justice resulted in 2% fixed mortgage rates for some fortunate borrowers.

Of course, they probably went through a lot to get that point. But one common theme is that not all homeowners pay attention to or take advantage of these things, and as such aren’t duly compensated.

Keep an eye out for legacy claims, and if they apply to you, it might be possible to save some money or secure a better rate in the process, all without refinancing.

Streamline Refinances Can Be a Lot Easier

Even if you’re not eligible for these programs or able to negotiate a lower rate, it might be possible to execute a streamline refinance.

As the name implies, it’s a faster and easier way to refinance a home loan for the express purpose of securing a lower interest rate.

This option allows you to refinance without the typical requirements like a minimum credit score or maximum LTV, and with limited paperwork.

Even though it’s technically still a refinance, it should prove to be a lot easier to qualify, and it shouldn’t be as painstaking of a process.

Look Into a Recast Instead

There’s also the lesser-known loan recast, which like a refinance, can lower the monthly payments on your mortgage.

The difference is you’re simply adjusting the amortization schedule of the loan.

Let’s assume you’ve been paying extra each month to lower your outstanding balance, which is great for saving money long-term, but does nothing to lower subsequent monthly payments.

If you want your lower balance to be reflected in your remaining payments, you can request a recast from your lender or servicer, which will re-amortize the loan.

Then you should have lower monthly payments going forward, without a refinance or the closing costs that come with it. There may be a small recast fee though.

The beauty of the non-refinance route is that you also don’t reset the clock on your mortgage. In other words, you don’t extend the term with a fresh loan.

Pay More Each Month and Enjoy the Same Savings

Another thing you can do to save money without a mortgage refinance is to simply pay more each month, assuming you’ve got the cash on hand to do so.

This is yet another reason to set aside cash for a rainy day, or simply to better manage your debt when it’s favorable.

The more you pay above what you owe each month, the more you’ll save over the course of your mortgage term, regardless of your interest rate.

In effect, extra payments, such as biweekly ones or simply an additional payment each year, lower the amount of interest you pay.

While your mortgage rate won’t change, nor your monthly payment, the amount of interest paid will, which is basically the same deal as a refinance without all the paperwork and qualifying.

Go with an ARM and Hope for the Best

If you want a self-service mortgage, you could also just go with an adjustable-rate mortgage, which will rise and fall over time as the economy does its thing.

While this might sound silly, tons of homeowners who took out ARMs prior to the recent housing crisis actually wound up with rock-bottom interest rates without lifting a finger.

They actually benefited tremendously as mortgage indexes hit all-time lows, assuming they kept their homes and their original mortgages.

Of course, this isn’t for the faint of heart, and the way things are looking at the moment, interest rates seem to be on an upward trajectory.

Still, this is one way to potentially lower your interest rate without refinancing. Or doing anything at all.

Use a Second Mortgage to Pay Off the First

One last trick some folks use to reduce their mortgage interest expense is opening a second mortgage to pay off the first.

It’s basically a form of arbitrage where rates are lower on the second than the first for one reason or another.

This can be done with either a fixed-rate home equity loan or adjustable-rate HELOC. But it takes a bit (sometimes a lot!) of tinkering and money management skills to get it done.

So in the end, you might just be better off refinancing your mortgage or sticking to some of the other options discussed above.

The good news is there are always plenty of options available to those who manage their credit and finances properly.

If you have excellent credit, maintain steady employment, and set aside cash in a savings account, you should have a variety of tools at your disposal regardless of which direction interest rates are going.


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