How do you find the right lender when you've decided to refinance your home? After all, you've crunched the numbers and they indicate that refinancing would be a plus in your case—you'd have lower monthly payments, pay less in interest over the long term, or perhaps pay just a little more to cut more than a decade off the length of your loan. Now you just need to get that new mortgage.
To get a loan, you need to find a lender. While walking into the local bank and asking for a loan may help you reach your goals, putting a little more effort into the process is likely to be time well spent.
Finding the Right Lender
Banks and credit unions are the entities that most often come to mind when homeowners think about obtaining loans, but they are not the only potential sources. Consumer finance companies, savings and loan institutions, and other entities also offer mortgages. 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 over the lifetime of the loan.
- The right lender can help you save money in fees and interest over the life of a loan.
- Loan officers and mortgage brokers earn money from the transactions they make, so it pays to do some of your own legwork to ensure you get the best deal.
- A lender's good faith estimate details the fees that you will be required to pay at closing and is a good document to use to comparison shop for loans.
- Looking online can help you locate a lender that provides good service and answers your questions thoroughly and promptly.
Loan Officers and Mortgage Brokers
When beginning your search for a lender, keep in mind that loan officers—who represent banks, credit unions, and other financial institutions—are paid partly based on the transaction that 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 get the best deal. That means understanding the full variety of available options and the pros and cons of each of them.
Mortgage brokers serve as an intermediary between you and the lender and can help you compare the services of many lenders and work to secure you the best rate. They are sometimes paid a fee by the borrower (that’s you) to provide assistance with finding a mortgage and facilitating the loan origination process, but more typically they are paid by the lender in exchange for bringing business to that lender. Like loan officers, making a sale is how they get paid. 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 Lenders Comparison: Cost
The key items to consider when selecting a mortgage lender are costs and services. 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, and whether or not a penalty is accessed if you pay off the loan early—will provide insight into the various costs. Conversations with your prospective lender or mortgage broker, and a review of the good faith estimate the lender provides, will enable you to make a reasonable comparison.
The good faith estimate is a legally mandated document designed to protect borrowers by requiring lenders to provide standardized disclosure of the costs associated with a loan. This written estimate details the fees you will be required to pay at closing, including the cost for all points, processing, legal fees, and 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.
Even with good credit, you may not qualify for the lowest interest rate because lenders have tightened their standards for loan approvals.
Mortgage Lenders Comparison: Service
On the service side, getting your questions answered in a timely and accurate way is an important element of the process. Getting 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 on time and make a significant contribution to your personal peace of mind.
At one time, researching and gathering the information you need 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. You can go online and find convenient ways to compare lenders and gain insights into the range of interest rates available for the loan you’re seeking.
The Bottom Line
Refinancing your mortgage can, under the right circumstances, be a financial boon for your pocketbook. Before you embark on the process, though, you need to understand it in order to make sure that it’s right for your particular situation.
The steps involve deciding whether to use a loan officer or mortgage broker, selecting a lender, calculating costs, and determining who will provide the best service. Fortunately, online resources make the job much easier today than it used to be. So take control of the process and see what you might be able to save.