Mortgage Daily

Published On: December 23, 2022

Do Not Accept the First Refinancing Offer You Receive

Homeowners should not accept the first refinancing rate provided to them. This is particularly important if you are applying with your existing lender.

Some mortgage lenders have mechanisms in place that prioritize client retention above offering competitive refinancing rates.

By simply applying with the lender who currently services your mortgage, you may miss out on the market’s most competitive interest rates.

Request the Lowest Rate Offered by Your Existing Lender

Remember that your lender or loan servicer is aware of your current interest rate when refinancing.

Existing borrowers may be willing to accept a higher-than-market interest rate if it is lower than their present rate.

Lenders employ “retention” employees who aim to prevent borrowers from refinancing with other mortgage lenders.

When you contact your existing lender to request rates or a payback statement, they will know that you are seeking a mortgage refinancing.

At this point, they may refer you to a retention expert who will likely give you a better rate depending on your current mortgage — not necessarily the lowest possible rate.

For instance, if the lender observes that your current rate is 4%, they may give you 3.5%, while a new customer may be quoted merely 3%.

The lender “sells” the increased interest rate with ease. They may assert that lowering the interest rate will necessitate less work on your part.

In reality, though, refinancing should require the same amount of work regardless of the lender chosen. Documentation and eligibility criteria are generally determined by the sort of loan you’re applying for, not the lender.

Your present lender’s method benefits them in two ways: it prevents them from losing you to the competition and allows them to continue earning a higher-than-market interest rate on your loan.

On the other hand, a new lender has the incentive to give you a cheaper interest rate to earn your business.

How to Locate the Most Affordable Mortgage Refinancing Rate

The only method to discover the lowest refinancing rate for a new loan is to obtain quotations from at least three lenders. Homebuyers who examine various loan quotations before selecting an underwriter for a new mortgage typically receive the lowest interest rates.

However, ensure that these rates are based on your actual situation and not just a rate offered in junk mail or on a website.

Typically, advertised rates represent the best available pricing. They often assume a borrower with a perfect credit score, a modest debt-to-income ratio, and a 20% down payment.

Your rate may be more or cheaper if your profile does not completely match the lender’s example. How much it differs depends on how accommodating the loan officer is to your case.

To provide an accurate estimate, mortgage lenders require:

  • The property’s setting
  • The property’s worth
  • The sum of your down payment and financing
  • Your credit rating

Lenders can often deliver a rate quotation within minutes based on the information you supply.

Using our refinance calculator will similarly assist you in estimating how much you may save with a new loan.

These loan estimates should be quite accurate; moreover, your quoted rate is only guaranteed once the lender has confirmed all of your information and you have locked the rate.

To lock in a rate, the lender may require a complete application, including sufficient personal information, run a credit report to determine your FICO score, employment, income verification, etc.

Once you have received many estimates, you can determine if your lender is providing you with a fair refinance deal or if you should pursue a new mortgage firm.

Consider Both Fees and Mortgage Rates

Typical error homeowners make when shopping for a refinancing loan is focusing just on interest rates.

Your interest rate is significant, but it is not the only factor to consider.

You must also compare the following elements indicated on your Loan Estimates:

  • Annual percentage rate (APR): Your ‘effective’ interest rate when all loan expenses (interest and fees) are added together.
  • Similar to house purchase loans, refinance loans include closing expenses. Pay close attention to origination costs (the lender’s profit) and discount points while you comparison shop (the amount you have to pay upfront to get the quoted interest rate)
  • Don’t only consider the amount you’ll save on your monthly mortgage payment. Also, consider your overall interest throughout the life of the loan to determine which lender is the most costly (this number is listed on your Loan Estimate)
  • Loan terms: Ensure that all of your estimates pertain to the same loan so that you can compare apples to apples. For instance, if one offer is for a 30-year mortgage and the other is for a 15-year mortgage, the interest rates and monthly payments will be drastically different. Or, when comparing a cash-out refinance to a no-cash-out refinance, the cash-out loan will have a higher interest rate.

You may disregard lenders’ estimates for property taxes and homeowner’s insurance, as you will pay the same amount regardless of which lender you select.

Think About the Sort of Refinancing Loan You Require

The second factor to consider when refinancing is the loan you desire for your new mortgage. Does your existing lender provide it? Or must you hunt for a lender who does?

For example, homeowners with a government-backed mortgage often benefit most from an FHA, VA, or USDA Streamline Refinance. These loans with no documentation and no assessment are one of the quickest methods to obtain a cheaper interest rate and monthly payment.

If your current lender does not provide a Streamline Refinance, consider other options.

The same applies whether you seek an FHA cash-out refinancing or a VA cash-out refinance.

These loans may provide homeowners with liberal conditions, but lenders can set their standards.

If you have poor credit or a high loan-to-value ratio, you may need to refinance with a lender with more lenient rules.

When Should You Refinance With Your Current Lender?

If your existing mortgage lender can provide you with a better rate than the others you’ve considered, you should refinance with them.

You will only know if this is the case if you compare rates from at least a couple of different mortgage brokers or organizations.

Whether you like your existing lender and would like to continue working with them, consider if your rate quotations may be used as leverage.

You may leverage a superior offer from a different lender to negotiate a lower interest rate with your existing lender.

Negotiate Both Closing Costs and Interest Rates

You may also negotiate refinancing expenses.

In a no-closing-cost refinancing, for example, the lender pays your out-of-pocket expenses in exchange for a higher interest rate. The term for this is “lender credit.”

With current interest rates being so low, it is conceivable for homeowners to have their closing costs paid, accept a little higher interest rate, and still walk away with large savings.

Alternatively, certain lenders let you add closing fees to the loan total.

You can save the upfront expenditures of refinancing while still receiving the lowest rates offered.

What Are the Current Refinancing Rates?

As mortgage and refinancing rates continue to hover at record lows, there are several chances for homeowners to save money.

If you are still paying rates from a year or two ago, the savings from refinancing might be substantial.

Refinancing may be worthwhile even if you reduce your interest rate by 0.5% to 0.75%, depending on your present loan and financial objectives.

Check the current interest rates to locate the best refinance offer for you.

 

 

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