Thinking of refinancing your home, or maybe already shopping for a loan to replace the one you’ve got? Not all refinances are created equal, so be sure to find one that suits your specific financial goals while also giving you access to the best rate possible.
We’ve put together a guide on how to find your best refinance companies for mortgages in 2019 so you can make sure you’re on the right path.
Why you may want to refinance
Before starting the refinancing process, consider first what you’d like your end goal to be.
“Figuring out what your financial goals are before you get the refinance is crucial,” said David Krichmar, a mortgage banker with Legend Lending Corporation In Houston,Texas. “That way, you’ll be focused on what result you’re after.”
There are many reasons why you may want to refinance your mortgage, and they include
Lowering your interest rate: Even though rising interest rates have been in the news lately, they’re still fairly low from a historical prospective. If you took out your mortgage more than a decade ago, you may still be able to refinance at a lower rate.
Adjusting the length of your mortgage: You may want to adjust the length, or the term, of your mortgage, either by increasing the length to lower your monthly payment or by decreasing it to pay off your mortgage faster.
Changing from an adjustable-rate mortgage to a fixed-rate one: With an adjustable-rate mortgage, your payment can increase or decrease according to current interest rates. Sometimes, in order to make mortgage payments more predictable, homeowners refinance to a fixed-rate mortgage, which features regular, monthly payments.
Getting an adjustable-rate mortgage with better terms: If you have an adjustable-rate mortgage that’s about to increase, it can make sense to switch to another adjustable-rate mortgage that has better terms, such as smaller rate adjustments or a lower payment cap.
Cashing out on your home equity: If you have a big purchase coming up, like a major home renovation or financing for your child’s college education, it may make sense to do a cash-out refinance, where you borrow more money than you owe and the difference is given to you in the form of funds to be used at your discretion.
What to look for in a mortgage refinance company
Differences in interest rates
A major reason why consumers choose to refinance is to find a lower, more affordable interest rate. However, mortgage rates vary according to the lender, and the rate you’re offered may be quite different from what’s offered to another consumer. You also need to consider whether you plan to be in your home long enough to recoup any upfront fees that might come with refinancing.
According to the federal Consumer Financial Protection Bureau, lenders look at seven factors when setting interest rates.
Credit scores are key, and lenders generally prefer to see a credit score of 620 (expect even better rates if it’s over 700).
But rates also vary based on the price and location of your home, your total loan amount, the size of your down payment, the length of your loan (usually 15 to 30 years), the loan type (an adjustable- versus fixed-rate mortgage) and whether it’s a special loan like one from the FHA or VA.
Compare refinancing terms carefully. If you’re shopping for an adjustable loan, be sure you understand how often the rate might be adjusted and how this will affect what you pay monthly.
If you live in a large city or metro area, read this LendingTree story to see where borrowers often save the most by comparing mortgage rates.
Differences in closing costs
Just like your primary mortgage, your refinancing mortgage will have closing costs. Again, these fees can vary by lender, but in general you can expect closing costs to equal 3% to 6% of the value of your loan principal. Here’s an overview of where your money will go:
Loan origination fee: A loan origination fee is a fee the lender charges to process your loan. It’s usually 1% to 1.5% of your total principal costs.
Appraisal fee: Most lenders require an appraisal to verify your home is worth as least as much as the loan amount. Typically, an appraisal will cost around $300 or $400, but it could be more, depending on where you live.
Inspection fee(s): Sometimes lenders require a new inspection of your home, or some other inspection, like checking for wood-destroying insects or structural damage. According to Home Advisor, a home inspection usually costs around $315 and additional inspections will be an added cost.
Title search and insurance fees: A title search checks to ensure you are the rightful owner of your home and that it doesn’t have any current liens or judgements against it. Title insurance protects you and the lender against any errors in ownership. Expect to pay an average of $1,000.
Prepayment penalty: Some lenders charge a fee for paying off your existing mortgage early. The cost varies by lender and can be either a fixed fee or a percentage of the remaining loan balance.
To get the clearest picture of what you might have to pay in closing costs, ask a lender for an estimate sheet, Krichmar suggests.
“You want to get a full estimate worksheet,” he said. “Some lenders will just send over the interest rate, but you want something that shows all the closing costs.”
To learn more about closing costs for refinancing loans, go here.
Speed in closing
In January 2019, mortgage originator Ellie Mae found it was taking an average of 38 days for a refinance loan to close. As a consumer, you’ll naturally want to see your new loan close as quickly as possible, but time is especially critical when you want to lock in a good interest rate.
A rate lock means your interest rate won’t change from the time when you submit your mortgage to the time you close on the loan, as long as you close within a specified timeframe. With that in mind, Krichmar advises speaking to your lender.
“Always ask ‘How long does it take to close my loan?’ and ‘How long is my rate lock good for?’” he said. “The two time periods should always match up.”
If you’re like most consumers considering a refinance, you may decide to first approach the institution where you already have all your personal accounts, and that very well might be a large bank. However, Krichmar advises checking in with a local lender.
“The bigger lending institutions may not be as familiar with the loan programs in your area,” he said. “When you’re doing a refinance, you want to be working with someone who is able to really zero in on finding the best program for you.”
According to Krichmar, working with a local lender can also help you when it’s time to get an appraisal, which can be a requirement, especially for cash-out refinances where the amount you are allowed to borrow is partially determined by the value of your home.
“A local mortgage rep will be able to connect you with an appraiser who knows your area and that’s the best way to get the correct valuation on your home,” he said.
Consider a company’s customer service reputation before bringing them on as a lender for your refinance.
“This is a good opportunity to go by referral,” Krichmar said. “Ask your friends and family if they’ve worked with anyone in the past that they can recommend.”
Online reviews can also provide a sense of the experiences of other loan customers.
As a final step, check the Consumer Finance Protection Bureau (CFPB) public database that tracks both the number and type of complaints filed against mortgage lenders.
How to compare quotes
Get a range of quotes
Ideally, when you start searching for a refinance company, get two to three estimates from different companies. To get estimates, consider taking one or more of the following steps:
Speak with your current lender: If you’re happy with your current lender, consider them for second time around. In fact, your current lender may be able to help you get through the process faster and easier than a lender who has never met you before.
Use a mortgage broker: A mortgage broker can help if you prefer not to research a handful of mortgage companies on your own. Most likely a mortgage broker will be connected to several different lenders and may be able to quickly present you with several different quotes. However, you may have to pay a fee for this service, or your lender may have to pay a commission.
Use an online database: Online marketplaces like the one offered by LendingTree can help you compare lenders based on a variety of factors, like rates or fees, and contact them directly yourself. However, be sure to do your own research as well.
Make sure you’re comparing similar estimates
By now, it should be clear no two refinance estimates will be exactly alike. Watch for outliers, or those estimates where the rate appears too good to be true. To compare estimates, weigh the value of each estimate based on the same factors, like the interest rate and type, length of the loan, closing fees and possibly the cost of points. These are optional fees you may decide to pay your lender to lower your interest rate. If you decide to go with points, the fee will be added to your closing costs.
The benefits of shopping around
It may seem like a lot of work, but shopping around for the best interest rate for your refinance loan really does make a difference.
Let’s say you’d like to refinance a home you bought for $250,000 in 2012 but is now worth $300,000. You had a 30-year loan at a 5% interest rate, but are now considering a 4.5% loan. Over the lifetime of the loan, you’d save $20,705 in loan costs, and your monthly mortgage payment would drop from $1,342 to $1,114.
With that in mind, do your research and speak with lenders. To compare mortgage rates, based on what lenders are currently offering in your area, use LendingTree’s rate tracker. To see if you have your best refinance rate possible, go here.
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