The Pros & Cons of Using a Lender You’ve Already Done Business With
When I talk to owners of commercial property about financing, it’s not uncommon for them to say something like, “I take all my banking needs to my favorite lender.” Now there could be two reasons for their response: 1) I haven’t gained their trust and their response is just an easy way to get rid of me. If that’s the case then I got what I deserved. You don’t ask for someone’s business until you’ve got their trust; or 2) they actually believe what they say. And if that’s the case then I think to myself, and I try my hardest not to say it out loud, “Are you really that foolish?”
Is convenience or loyalty so important to you that you would accept a less competitive loan with your existing lender than what a mortgage broker can find for you? Or in other words, if a mortgage broker can save you $50,000 in interest expense, net of his loan fee, over the life of the loan why wouldn’t you take it? How long does it take you to gather the appropriate documents for a mortgage broker to go through the exercise of getting you a lender quote? A couple of hours maybe? Is being inconvenienced a couple of hours more important to you than saving $50,000. You would be surprised how often a borrower would rather stay with their existing lender because to check out what’s available in the market may inconvenience them a few hours in gathering the information. It happens more often than you’d think.
Let’s back up for a moment. Financing your property with your current lender assumes three things that may or may not be true. It assumes that your favorite lender is still in business, that he’s still lending and that their rates and terms have not changed, at least not adversely.
But in today’s lending environment, your favorite lender of choice may no longer exist. If they do exist they may not be lending and if they are lending, their rates and terms may not be as good as they once were.
But let’s assume your favorite lender is still lending, then convenience is the primary advantage of financing your property with a lender you’ve already done business with. It certainly is the path of least resistance and in most cases it should be the quickest way to get the job done.
The disadvantage of this approach is that you’ll never know whether you received the best rates and terms currently in the market. Just think about it for a moment. What are the chances that your existing lender has the best financing available of all the potential lenders to choose from? That would be the equivalent of picking the proverbial needle out of a haystack. Not likely is it?
However, if convenience and ease of doing business are your top priorities in choosing a loan, you need go no further than back to a previous lender you’ve already done business with.
Personally, I don’t see why anyone would go back to their existing lender without at least calling a mortgage broker to get their opinion. A quick conversation over the phone with a good mortgage broker should give you a pretty good understanding of how your existing lender’s rate and terms compare to the market. Just say something like this to the mortgage broker: “I don’t want to waste your time so let me tell you the quote I’ve already received from my favorite lender and then you tell me whether that’s competitive or not.” Then tell him the proposed rate and terms. The mortgage broker will appreciate that you realize his time is valuable and he will likely know if the quote you have from your existing lender is competitive. If he thinks he can improve on your quote, he’ll tell you. And if he knows that he can’t he’ll tell you that too as he doesn’t want to waste his time shopping the market if he already knows it’s unlikely he can improve upon your quote.
If he tells you that he can improve upon the quote you’re not obligated to use his services. But if you want the best loan possible for your property, you owe it to yourself to shop the market. And this is where it gets interesting. You have a choice to make: Do you shop the market on your own or do you use a mortgage broker? The next four chapters will give you the steps you need to follow if you plan to shop the mortgage market on your own. Keep reading!