by Maurie Backman | Updated July 19, 2021 - First published on Sept. 19, 2020
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It could pay to refinance with a new mortgage lender, even if you've been working with your current lender for years.
There's a reason a lot of homeowners are looking to refinance these days. Mortgage rates have hit historically-low levels, so now's a great time to swap an existing home loan for a new one. If your new rate ends up being a lot lower than your current rate, you could reap a huge amount of savings in the form of a much lower monthly mortgage payment.
But if you're going to refinance your mortgage, it doesn't necessarily pay to stick with your existing lender. Here's why it could pay to switch to a new one.
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You might assume you'll snag the most favorable refinance rate with your current lender, especially if your account is in good standing and you have a solid history of making your payments on time. But different mortgage lenders have different loans and different borrowing requirements that dictate what rate you'll be offered. A lender you've never worked could offer you a 3.2% rate on your mortgage refinance while the best your current lender can do is 3.35%. In that case, why wouldn't you want the lower rate -- and the lower monthly payment that goes with it?
Just as you're required to pay closing costs when you sign an original mortgage, so too do closing costs come into the picture when you're refinancing a home loan. But closing costs aren't universal; each lender charges its own fees, some of which may or may not be negotiable. And that's another good reason to consider switching lenders. It may be that your current lender wants to charge $4,000 in closing costs for your refinance, while another lender can close on your new loan for just $3,000.
Of course, in that case, you'll also need to make sure you're looking at comparable rates. If both lenders offer the same interest rate but there's a $1,000 discrepancy in closing costs, you should clearly go with the option that saves you that $1,000. But if paying $1,000 less at closing means getting stuck with a higher mortgage rate, it may not be worth it.
Perhaps you've had a bad experience getting your mortgage lender to respond to your inquiries, or you don't like your current lender's process for paying your monthly bill. If that's the case, it could pay to switch to a lender that's easier to work with, assuming you're looking at a comparable mortgage rate and closing costs. A new lender might offer shorter wait times when you call in, better customer service, and a website that's simpler to navigate.
Whether you end up refinancing your mortgage with your current lender or a new one, it always pays to shop around for a number of offers before making your decision. Once you get a bunch of offers in, you can compare them side by side and see which one is ultimately the best deal for you.
Chances are, interest rates won't stay put at multi-decade lows for much longer. That's why taking action today is crucial, whether you're wanting to refinance and cut your mortgage payment or you're ready to pull the trigger on a new home purchase.
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