Updated on Thursday, April 29, 2021
While it might be tempting to refinance with the same bank and lower your monthly mortgage payment, you should shop around with other lenders first to make sure youâre getting the best deal.
As with most financial products, itâs always best to practice due diligence and research your options before you refinance with your current mortgage lender or with another lender.
You may want to refinance with your current lender because you already have a relationship with them. Since they have your personal information and payment history, they may be able to set the terms of the loan faster than a new lender.
Having your information on file may have been a significant advantage 25 years ago, but currently, any lender can access your credit score and history quickly. And since all refinance loans feature new terms, itâs a good idea to get offers from several lenders.
A January 2021 report from data and analytics company Black Knight suggests consumers are choosing to refinance with new lenders.
The number of loan originations set record highs in Q4 2020, but only 18% of the 2.8 million homeowners chose to refinance with their original servicer, the lowest share recorded to date.
According to David Yi, president of Providence Mortgage based in Bethesda, Md., consumers shouldnât assume their current lender has the best refinance deal, especially if the lender is a traditional bank with a brick-and-mortar location.
âBanks typically donât compete with other lenders; they just say, âThis is the price, take it or leave it,ââ Yi said. âThey donât have any motivation to negotiate because theyâll sell the loan regardless to somebody else who will come through their doors.â
It makes sense, then, to get several offers from different mortgage lenders and potentially save money.
âMortgage lenders actually have more leverage because they have different investors who give them the wiggle room,â Yi said.
Deciding whether to refinance with your current bank or move on to a new one may come down to your goals.
If convenience and time are essential to you, you may find it easier to refinance with the same mortgage company. On the other hand, if cost is your primary concern, shopping around is the best avenue to take. You may even be able to get your current lender to match or beat a competitorâs best offer.
Consider these factors to decide where you should refinance your mortgage loan:
Not all lenders will be as competitive with a refinance loan, preferring to focus on borrowers who need mortgages to buy new homes. Thatâs why itâs wise to get offers from multiple lenders so you can be confident youâre getting the best interest rate with the lowest costs.
Follow these steps to shop for the best mortgage refinance and maximize the opportunity to save money.
To make sure you get accurate loan estimates, you want to provide the same data to each lender. Hereâs a quick overview of what you should have handy:
Current mortgage statement: Your recent mortgage statement has information about your total current payment, interest rate, mortgage insurance premiums, property taxes and insurance.
Date you took out your current mortgage: If you have an FHA, VA or USDA loan, this date is important to determine your eligibility for streamline refinance programs backed by the government that require very little documentation.
Estimated FICO Score: Lenders will typically run your credit to confirm your credit score. Inquiries made on the same day by several lenders should only count against your credit as one credit pull, so you shouldnât have to worry about a sudden drop in your scores.
Estimated home value: Lenders will determine your loan amount based on how much equity you have in your property, a figure that requires that you know the value of your home. You can determine that number by asking your real estate agent to run a comparative market analysis for you. If you just need a rough estimate, you can use an online home value estimator.
Once you have your information together, the best thing to do may be to see what kind of quotes you can get elsewhere. One way to get immediate offers from several different lenders is to use LendingTree, an online marketplace for different types of loans.
You can also call lenders in your area or ask for a referral from a friend or family member who recently refinanced with a local company.
Interest rates fluctuate much like the price of stocks, which is daily. For an apples-to-apples comparison, get all of your quotes on the same day. With an online marketplace, the process is relatively easy because all of the lenders you find usually contact you the same day you make your online inquiry.
If you call around to local lenders, you may or may not get calls back that day. If thatâs the case, use the rate quotes you received on the same day for comparison purposes. If you call another lender on a different day, the market may have shifted and you wonât be comparing apples-to-apples price quotes anymore.
With your best refinance offer from a new lender in hand, contact your current lender and see if they will match or beat the rates, terms and costs of the mortgage loan. Then choose the lender that provides you with the best offer.
Once youâve made a choice, ask the lender or broker to lock in the rate in writing. You should receive a document stating your lock-in rate, the duration of the lock-in rate and any interest rate reductions.
The benefit of the lock-in rate is to safeguard you from rising interest rates during escrow, although it could backfire if rates drop. In that case, talk to your lender and try to reach a compromise.