My brother purchased a house in 2014 and had a rate of 4.5%, then 2 years later he refinanced and was able to get a rate of 2.5%. Why would a bank choose to reduce the amount of money they would get on his mortgage?
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Since my first reply got deleted by a bot, I will try to explain in more detail.
Banks make their money on lending money to people at a higher interest rate than they give to people who deposit money in their institutions. Let’s say they loan someone money for a mortgage at 5% because that is the current rate. 3 years down the road interest rates continue to fall. The borrower wants a lower rate. He asks his bank to refinance at a lower rate than he is currently paying. His current bank has basically two options. 1) Lower his interest rate via a refi (where there are costs for the process paid to the current bank, or 2) lose this person as a customer for the next 15-30 years.
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