When people refinance, a penalty is incurred. The bank’s method to avoid having the customer pay ‘out of pocket’ for the penalty is to ‘blend’ the old with the new rate. That is if they stay with the same bank.
Remember the bank will not tell how they came up with the blended rate, you do not know whether it is fair or not.
We had clients who told us their bank had offered them a blended rate of 4.39% when the market rate was 3.89% The penalty that was worked into the blended rate was $800. When we checked to see whether it was better for them to change lenders, pay the penalty, and get the best rate for the next 5 years, we determined that they would pay an additional $3,478.60 more to the bank than they would versus paying the penalty themselves and changing lenders.
On the surface the blended rate of a half per cent more looks fair, but it is not. Our new clients agreed and did not think paying almost $3,500 more was a good thing to do. Guess who got their business. We did. We refinanced them so they actually did not pay out of pocket for the penalty.
Your ‘friendly’ banker may do this with a smile, but what’s behind the smile is them knowing the bank just ‘made’ a nice profit on the transaction. We just think about how many(perhaps) tens of thousands of blended mortgage transactions are done like this every year.
No wonder why bank profits are excessive, and this is but one example of many ways ‘you get beat’ by the banks.
If you think your bank is taking advantage of you, give us a call to prove you right. Better yet, why not call us first. We are on your side and we’ll do you right the first time, every time.