You know that refinancing your mortgage will enable you to lower your mortgage payment, reduce your monthly expenses, save you thousands of dollars over the lifetime of your loan and maybe even shorten the amount of time it will take you to pay off your mortgage. All of those developments would put a few more dollars back in your pocket at the end of each month. You've crunched the numbers and they say that refinancing would be a plus in your case. Now you just need to get a loan. 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. 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 over the lifetime of the loan.
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 in the marketplace 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 paid a fee by the borrower (that’s you) to provide assistance with finding a mortgage and facilitating the loan origination process. They are also paid a fee 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.
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, 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. (For more, see 9 Things to Know Before You Refinance Your Mortgage.)
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 selecting a lender, calculating costs, selecting who will provide the best service and deciding whether to use a loan officer or mortgage broker. 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. (For more, see Should I Refinance My Mortgage?)
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