What to Do If Your Bank Denies Your Request for a Mortgage Refinance?

by Don Rafner
Refinancing your mortgage loan can save you money.

You want to take advantage of low mortgage-interest rates by refinancing your existing mortgage loan. Doing so could save you hundreds of dollars each month in mortgage payments. Unfortunately, the bank to which you send you payments each month denied your refinance request. The good news? You have options.

Options

You are under no obligation to refinance your mortgage loan with the company to which you currently send your monthly mortgage payments. That's good news for you. It means that you can shop around to different mortgage lenders for the best interest rates and lowest fees. It also means that you can continue to seek refinancing even if your original bank denies your request.

What Went Wrong?

Before you begin calling other mortgage lenders and banks, you'll need to determine why your original bank refused your refinance request. Most banks will tell you this. Maybe your gross monthly income wasn't high enough. Maybe you had too much debt. Maybe your credit score was too low. Whatever the reason, you'll need to take steps to address it.

Improving Your Financial Health

Once you know why your bank denied your request for a refinance, it's time to address the concerns it outlined. If your bank decided that your gross monthly income -- your income before taxes are taken out -- wasn't high enough, you'll have to determine some way to boost that figure, whether it means getting a second job, having a spouse enter the workforce or adding rental income or some other regular money stream into your household. Maybe your credit score was too low to qualify for a refinance. You'll need to make sure to pay all your bills on time and pay down your credit-card debt, something that will, over time, boost your credit score. Did your bank worry that you had too much debt? You can solve these concerns by paying down your credit-card balances and other debt.

Is Now the Right Time?

If you continue to receive rejections from other lenders, this might not be the right time for you to refinance. Fixing your financial health so you can qualify for a mortgage refinance takes time. There is no way, for example, to increase your credit score by a significant amount overnight. You'll usually have to spend months to pay down large sums of credit-card debt. For a refinance to make financial sense, you'll need to save enough money each month to cover the cost of refinancing. Refinancing isn't cheap -- the Federal Reserve Board estimates it costs 3 percent to 6 percent of your outstanding loan balance. So you'll need a significant drop in your interest rate to notch the savings you need. You won't be able to achieve this if your credit score and finances aren't in good shape.

About the Author

Don Rafner has been writing professionally since 1992, with work published in "The Washington Post," "Chicago Tribune," "Phoenix Magazine" and several trade magazines. He is also the managing editor of "Midwest Real Estate News." He specializes in writing about mortgage lending, personal finance, business and real-estate topics. He holds a Bachelor of Arts in journalism from the University of Illinois.

Photo Credits

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