Most people know that you can refinance a loan, which involves getting a new loan at better terms and paying off the old loan. Refinancing is most commonly associated with home mortgages, but you can refinance any loan as long as the terms allow for it and you can find a better deal. Refinancing a mortgage is so common it’s pretty much standard advice to new homeowners: Watch interest rates, and refinance if they get a certain level below what you’re paying now.
But there’s another option for improving the shape of your debts: repricing. While similar to refinancing, repricing has several distinct advantages that make it worth investigating if you’re looking to reduce the costs or term of your current loan.
What is repricing?
When you refinance a loan, you generally go to a new lender and originate a fresh loan with better terms. You use the new loan to pay off the old loan, moving your business to another bank. As anyone who’s ever refinanced their mortgage knows, this can be a long, complex process. All that documentation you had to wade through when you took out the original mortgage? All the fees you paid and forms you signed? You pretty much do it all over again.
Repricing, on the other hand, keeps the process in the same lender. Basically, you’re going to your bank and saying hey, I noticed you have much better loan terms these days than when I originated my loan — can I switch over to those nice, new low rates? Instead of taking your business to a rival bank, you keep everything internal. It can be confusing because many lenders will refer to this as refinancing, and the terms are often used interchangeably.
While that doesn’t sound all that different from refinancing — because it is essentially the same thing — there are some distinct advantages to repricing your current loan instead of refinancing it:
- Costs. Most loan repricings incur a simple flat fee from your bank, typically in the $500-$1,000 range, depending on the size of the loan. Refinancing, on the other hand, triggers a slew of additional costs because you’re going through the whole loan process again. When you stay within your current lender, all that work’s already been done. Refinancing can cost you several thousand dollars, and if you’re still in the “lock-in” period, you might pay a penalty on top of that.
- Time. If you have a mortgage, you know that banks move glacially when it comes to opening up the money spigot. It’s the same for refinancing — it can take months to get through the process. Repricing, on the other hand, is usually a simple internal process in your bank, and is usually done within a few weeks.
Those are two pretty huge advantages, so it’s well worth your time to investigate repricing instead of refinancing. If you find better rates or terms at another bank, it’s also worth it to bring those to your current lender and see if they’ll reprice your current loan in order to keep your business. Your worst-case scenario is being told “no” and having to go through the more laborious refinancing process.
This doesn’t just apply to mortgages: Credit cards often reprice your loans without consulting you, changing your interest rates based on “behaviour-based repricing,” which is typically punitive (your rates go up, usually due to a missed payment), but not always. And you can reprice any loan you’re carrying as long as the terms allow it and your lender is amenable. It’s important to note that your lender doesn’t have to reprice your loan — your bank might insist on a full-on refinance with all the fees and delays involved. But it’s probably worth investigating.
Bottom line: If interest rates favour you and you want to refinance your loan, look into repricing first. It can save you time and money.
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