You know that refinancing your mortgage will help you lower your mortgage payment and save you thousands of dollars over the lifetime of your loan. Doing so may even shorten the amount of time it will take you to pay off your debt and put a few more dollars back in your pocket at the end of each month. The first thing you'll have to do is to get a new loan, which means finding a lender. You could walk into the local bank and ask to borrow money. While this may help you reach your goals, you may be surprised to learn that putting in a little more effort could lead to a bigger payoff. Here are a few things you may want to consider.
Finding the Right Lender
Most people think of banks and credit unions when they consider refinancing, but they are not the only potential sources. Consumer finance companies, savings and loan institutions, and other entities also offer mortgages. It may be time-consuming and very tedious, but sorting through the large variety of lending institutions and offerings available in the marketplace is well worth the effort. Taking the time to choose the right lender can make a big difference in the amount of money you will spend in fees to obtain a loan as well as in mortgage interest.
When you start your search, keep in mind that loan officers get paid off the transaction you make. That doesn't make loan officers bad people; it just means that you should do a little work on your own to make sure you understand every option available to you, in addition to the pros and cons of each of them.
Mortgage brokers can help you compare the services of many lenders and work to secure the best rate. As the borrower, you pay them a fee to provide assistance with finding a mortgage and facilitating the loan origination process. The lender also pays them a fee in exchange for bringing over your business. As with bank loan officers, mortgage brokers get paid by making a sale. Here again, a little knowledge and some comparison shopping are likely to serve you well. A small difference in your interest rate can add up to huge savings over the term of your mortgage. And, as with many traditional financial services, there are now several online tools available to help you avoid broker fees.
Mortgage Lender Costs
One of the key variables to consider with mortgage lenders is the costs. Understanding the terms of your loan — the amount of the monthly payment, the number of years until it's paid off, the interest rate, fees, whether or not a prepayment penalty is accessed if you pay off the loan early — will provide insight into the various costs.
That's why it's crucial to review the good faith estimate provided by your lender. This estimate is a legally mandated document designed to protect borrowers. It requires lenders to provide a standardized disclosure of the costs associated with the loan. This written estimate details the costs you will be required to pay at closing, including the cost for all points, processing, legal fees, filing, and closing fees.
While the law does not dictate the price that each lender charges for the various services they offer, the good faith estimate does provide a useful tool for comparison shopping. One loan provider may charge more for legal fees and less for filing fees. Another may have lower overall fees but charge a higher interest rate. A careful review of good faith estimates from the lenders you are considering will help you find the best deal.
Consider the Mortgage Lender's Service
On the service side, getting your questions answered in a timely and accurate way is an important element of the process. Obtaining a loan requires quite a bit of paperwork, as well as the collection and dissemination of a significant amount of personal information. Having a single, reliable point of contact for your questions can make the difference between a smooth, easy process and a tough experience.
Having the loan ready in time for your closing is another important consideration. Final documentation is often unavailable until days or even hours before the closing, and coordinating the schedules of the various parties involved in the transaction can be a challenge. A dependable lender will help to keep everything on track and make a significant contribution to your personal peace of mind.
At one time, researching and gathering information was a time-consuming process requiring visits to multiple lenders or hours on the telephone. While those options are still available, technology has helped to make the process much easier. With online mortgage rate calculators, you can hop onto a site and find convenient ways to compare lenders and gain insights into the range of interest rates available for the sort of loan you're seeking.
The Best Digital Refinance Companies
Comparing loan terms and characteristics isn't the only thing you can do online. Nowadays, many of the best lenders are virtual refinancers – doing business exclusively online. What you lack in the personal face time, you make up for in more advantageous rates, since these firms don't have the overhead expenses of brick and mortar institutions, advocates argue. Three of the top include Quicken Loans, Guaranteed Rate, and loanDepot.
Quicken Loans is a Detroit-based lender with an impressive branding effort and is one of the largest online retail mortgage lenders in the country. The company is known for having competitive rates and several unique mortgage products. It offers fixed-rate, adjustable-rate and YOURgage – which offers repayment terms that you can customize beyond the typical 15- and 30-year mortgages provided by most companies. You can choose any loan term from 8 to 30 years (in one-year increments) and get a fixed rate. This can really benefit those refinancing a mortgage: If you have, say, 23 years left on your current loan and want to refinance but do not wish to reset your term to 30 years, or take out a 15-year loan (which will bring higher monthly payments), you can obtain a 23-year loan, thus maintaining your existing term but at better rates.
Quicken also offers a Rocket Mortgage. Everything is done online — from the initial application and credit check to scheduling your home appraisal — and approval takes minutes. Rates are locked in for 90 days while consumers shop around for a home. The company aims to close a majority of its loans within 30 days, and it has an A+ rating with the Better Business Bureau (BBB).
Guaranteed Rate offers an online mortgage application process that is similar to Quicken Loans' Rocket Mortgage. You can even complete your initial application and view your credit scores with the three major bureaus for free — all on your smartphone. Based on what your credit qualifies you for, the mobile app allows you to select an interest rate and fee structure, and lock it in early in case rates increase. In most cases, you have the option to pay a higher up-front origination fee to receive a lower interest rate, or you can pay a lower fee (sometimes even no fee) and take a higher rate. Guaranteed Rate had an A-rating with the Better Business Bureau as of Oct. 2018 and received majority five-star reviews on real estate website zillow.com.
loanDepot is a direct mortgage lender, meaning the company provides the funds at closing itself rather than serving as a middleman. So there is one fewer person that has to be paid, which often translates to a better deal. Along with its competitive rates, loanDepot can give you a rate quote online in seconds. Fast closings are a big selling point for loanDepot. And a mortgage from loanDepot may not be out of reach: The company offers approvals to customers with credit scores as low as 580. The Better Business Bureau rated the company A+ as of Oct. 2018.
No-Closing-Cost Refinance Lenders
No matter what promotions say, refinancing always incurs fees. However, there are mortgages that let borrowers avoid paying closing costs. Instead, the comparable fees are built into the mortgage interest rate, making it slightly higher than that of a conventional mortgage.
Even so, this kind of mortgage may give borrowers a chance to cover the closing fees to obtain the refinanced mortgage they need to stay in their homes. It can also be attractive to individuals who plan to move within five years. With a traditional mortgage, it typically takes five years for a borrower to recoup his closing costs. But the higher mortgage rate with a no-cost instrument isn't significant and may work out to be less expensive than paying than the upfront closing costs. Consider these two no-closing-cost companies: LendingTree and CitiMortgage.
LendingTree is among the top-ranked companies for borrowers seeking a refinanced mortgage. Basically, it's a huge search engine. On LendingTree.com, individuals seeking a refinanced mortgage can use the calculator to input the property specifics — the value of the property, the amount of the original loan, the start date and term of the loan. Once all necessary information is calculated, they can receive up to five loan offers from different lenders.
Citigroup offers CitiMortgage. Though it charges an application fee, the company is one of only a few that offers pre-approval. While each case is different, CitiMortgage’s rates are well below the average lender in basic test cases, based on borrower credit rating and specifications for the loan. For example, in a recent search, borrowers with a single-family home in Atlanta, valued at $250,000 and with the desired mortgage of $200,000, could obtain a 4% 30-year fixed-rate mortgage with an annual percentage rate (APR) of 4.2%. These rates involve a borrower with a good-to-average credit score and a current mortgage balance of $20,000. With closing costs, this borrower would pay approximately $1,300 per month. Current clients of Citibank, which backs the loans, could receive benefits or credits toward these rates or toward closing cost fees. Waiving closing costs, while a major option with CitiMortgage, must be discussed one-on-one with an agent in person or over the phone.
The Bottom Line
Finding the best company to help refinance your mortgage depends on your personal circumstances. There are so many different options available, especially with companies choosing to go online for your business. Consider the costs and services that each refinance company brings to the table, and whether they suit your needs. After all, it is your hard-earned money at stake. The more time you invest in researching your refinance company, the better the payoff will likely be.