Are Lenders Responsible if the Borrowers Don't Benefit?

It would be a bad idea to put lenders at fault for situations where there was no tangible net benefit to the borrower after a loan refinance. This is because lenders actually have little if any control over these aspects of refinances.

Most, if not all refinanced mortgages provide some form of tangible benefit, otherwise they would not be carried out by borrowers daily. If a borrower happens to find following refinance, that there is no benefit, he or she is allowed three days to rescind. Even lenders known as “predatory lenders”, the focus of proposed legislation about prohibiting the refinance of mortgages with no tangible benefits, can provide a benefit to the borrower.

The problem with this benefit, however, is that this benefit is exchanged for “a pound of flesh”, which is why the proposed legislation requires a tangible “net” benefit, which essentially means that the benefit must outweigh the cost for it to be valid. However, this cannot be accurately determined by a lender, because the benefit and cost comparison is completely up to each individual borrower and what is in their head.

By looking at the four main reasons why borrowers decide to refinance, these ideas will become clearer. These four main reasons include raising cash, and reducing costs, monthly payments and interest rate risk.