If you are thinking about refinancing your home loan, consider switching to a new mortgage lender.
“The lender’s allegiance can backfire if you don’t shop around for better rates,” says Heather McRae, Loans Manager at Chicago Financial Services. This is especially true in today’s refi market, where lenders compete aggressively to win over customers.
According to a Dark Knight Report, lender retention is at an all-time low. Mortgage agents (read: the company that collects your mortgage payment) kept just 18% of the estimated 2.8 million homeowners who refinanced in Q4 2020, the lowest share on record.
Here are the pros and cons of switching lenders when refinancing your mortgage.
Pros: You can get a better mortgage rate
It never hurts to shop, says David Mele, president of Homes.com. “A lot of borrowers stay with their lender when refinancing because they know them well, but you still want to compare quotes to make sure you get the best deal,” says Mele. “If your account is in good standing, you may be able to get the lowest refinance rate with your current lender, but different lenders have different loan requirements. “
However, you don’t have to talk to every lender in town. McRae suggests getting quotes from three lenders when considering your options. “I talked to [a refinancer] recently who spoke to 11 different mortgage lenders and it’s just totally unnecessary, ”she said. “You won’t get drastically different offers going to a ton of lenders. “
If your current loan manager issues mortgage refits (some don’t), McRae recommends getting a quote from them, but be prepared to provide a good stack of documents. “A lot of people mistakenly believe that the application process is easier if they stay with their loan manager, but in general you will need to provide the same information and documents to your manager as to a new lender,” he says. it. .
Downside: you don’t know how a new lender treats their customers
If you’ve developed a good relationship with your lender, it’s no small feat. “Having someone you trust with your money is invaluable, and your home is probably the most important investment you have. Homespire Mortgage in Gaithersburg, Maryland. “Some lenders treat their clients better than others.”
Think about your experience with your current lender. Sheinin recommends asking yourself questions like, “Have you been kept informed of everything that is going on with your mortgage? Do you feel like you have the undivided attention of your loan officer? Did you get a good rate? Has your lender kept in touch? “
Having a responsive lender is especially important when the going goes wrong – say, if you need help. mortgage abstention request(borrowers with FHA loans, VA loans, or government backed USDA loans can sign up for forbearance plans, which suspend their mortgage payments until June 30) or need a change in ready.
Pros: You can get lower closing costs
The closing costs for refinancing are typically between 2% and 5% of your new loan amount – on a $ 300,000 balance, that works out to $ 6,000 to $ 15,000, as some lenders charge higher fees for real estate appraisals, title searches and other services. Therefore, a different lender may offer you lower closing costs than your original lender.
That being said, some lenders “will be willing to give a good current customer a discount on closing costs to keep them as a customer,” Sheinin explains. Depending on the lender, they could offer a reduction of a few hundred dollars to around $ 1,000 in lower closing costs.
A word of caution: “I always tell people to be careful when a lender offers ‘credit‘ to cover some or all of the closing costs,” says McRae. “This almost always means that a lower interest rate was available.”
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Downside: You can get slapped with a prepayment penalty
Although prepayment penalties have become less common, some lenders still charge borrowers a fee to pay off their mortgage before the end of their loan term. Prepayment penalty charges can vary widely. Some lenders charge customers a percentage (usually 2% to 3%) of their unpaid principal, while others calculate the prepayment charge based on the amount of interest the borrower would pay on their loan for a certain amount of time. months (usually six months).
Look for the term “prepayment disclosure” in your mortgage agreement to see if your lender charges a prepayment penalty and, if so, how much it costs.
The bottom line
You don’t have to refinance with your original lender, but whether it makes sense to switch to another lender depends on your priorities as well as the rate and terms you may qualify for with a new lender. Need a little help narrowing down your options? Consult the Money list of Best Mortgage Refinancing Companies of 2021.
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