Switching Lenders to Refinance Your Mortgage Has Its Pros And Cons
If you’re thinking about refinancing your home loan, consider switching to another mortgage lender.
Heather McRae is a senior loan officer at Chicago Financial Services. She says that loyalty to lenders can lead to poor results. This is particularly true in today’s refi market, where lenders compete fiercely to win customers.
According to a Black Knight Report, Lender retention has fallen to an all-time low. 18% was the lowest percentage of homeowners who refinanced their homes in 2020’s fourth quarter.
These are the benefits and drawbacks of switching lenders when you refinance your mortgage.
Pro: You may qualify for a lower mortgage rate
David Mele, President and CEO of Homes. Com, suggest it doesn’t hurt to shop around. Mele states that although many borrowers prefer to stay with the same lender when refinancing, they may not always be the best.
It is worth shopping around to find the best deal. If your account is in good standing, you may be eligible to receive the lowest refi rate. Different lenders have different lending requirements.
It doesn’t mean you have to contact every lender in your area. McRae suggests getting quotes from at most three lenders to compare your options. McRae spoke to a recent refinancer who had spoken with 11 different mortgage lenders. It’s unnecessary. If you visit multiple lenders, you won’t receive drastically other offers.
McRae recommends getting a quote from an existing loan servicer to see if they offer mortgage refi. Some do not. Be prepared to fill out a lot of paperwork.
According to her, while people may believe that the application process will be more straightforward if they stay with their loan servicers for the duration of the loan, the truth is that you will need to submit the same information and documentation to your servicer that you would go to a new lender.
Con: Customers are not treated well by a new lender
It is essential to build trust and a relationship with your lender. Homespire Mortgage’s chief operating officer is Todd Sheinin. It can be invaluable to have someone you trust with your money. He says that your home is the most important investment you’ll make. “Some lenders treat customers better than others.”
Consider your relationship with your current lender. Sheinin suggests asking the following questions: “Were you kept informed about all aspects of your mortgage?” Is it true that you felt you got complete attention from your loan officer? Did you get a great rate? Are you in regular contact with your lender?
It is crucial to have a lender that responds quickly when things go wrong. For mortgage forgiveness, apply for borrowers with FHA loans, VA loans, or USDA loans backed by the government; there are forbearance options. This allows borrowers to cancel or modify their loans and puts their mortgage payments on hold for 30 days.
Pro: You may get lower closing costs
Refinance fees are typically between 2% to 5% of the new loan amount. A $300,000. For a $300,000. Title searches, home appraisals, and other services can be more expensive than others. You might find a different lender that offers lower closing costs than your current lender.
Sheinin states that lenders may offer discounts to reliable and current clients to help them keep their business. Based on the client’s situation, the lender might offer a value of up to $1,000 on closing cost.
McRae cautions there is a caveat. McRae warns that lenders may offer credit to pay some or all of the closing costs. “This almost always means that a lower interest rate is possible.”
Con: You could face a prepayment penalty
Prepayment penalties are rare, but lenders will charge fees to borrowers for paying their mortgage off before the loan term expires. There are many prepayment penalties.
Lenders might charge customers a percentage, usually between 2% to 3% of the principal. Others charge prepayment fees based on how much interest the borrower would pay over a specific number of months (typically six).
Look for the phrase “prepayment disclosure” in your mortgage agreement to find out if your lender has any prepayment penalties and, if so, how much.
The bottom line
Refinances with your current lender are not required. It is up to the individual to decide whether switching to another lender is good. It depends on your priorities and what rates and terms you can get from a new lender. It is essential to narrow down your options.
KashPilot offers some valuable resources that will help you narrow your choices. Best Mortgage Refinance Companies for 2021.
short term loans
cycle of debt
annualize interest rate
consumer financial protection bureau