Refinancing the mortgage on your home can be a smart way to save money. After all, interest rates on home loans change over time, so you might find a better deal today.
Not sure where to start? Try plugging your current loan details into a mortgage calculator or a refinance calculator to find out where you stand, and to see how much a refinance could save. Since different lenders may offer different interest rates and terms, it’s always wise to shop around and compare offers.
But you might be wondering: What about your current lender—wouldn’t refinancing with it be much easier than going through the home loan process somewhere else?
While refinancing with your current lender may come with some benefits, it’s not always the right decision. Here’s a look at the pros and cons of refinancing with your existing mortgage company, and how surveying other options could work to your advantage—even if you end up staying with your original lender anyway.
The benefits of refinancing with your current lender
Refinancing with the lender that holds your mortgage offers many benefits—the biggest being convenience. This lender already has your financial information, including payment history, income, and credit history.
“They have easy access to your existing mortgage information, which could speed up the process,” says Lauren Anastasio, a certified financial planner at the online personal finance company SoFi. “Additionally, you already have a relationship with your lender.”
It can be faster to refinance if you choose to remain with that lender, rather than beginning the arduous process with a new one.
Your relationship with your current lender could mean that it will offer lower fees to refinance, such as loan origination fees, says Sarah Pierce, head of sales and operations at the digital mortgage company Better. It may also waive a home appraisal, at an average cost of about $340, according to HomeAdvisor.
“If you are getting the benefit of some monthly payment savings and your current lender is offering you a streamlined documentation refinance without an appraisal, it may be worth your time to take the offer, even if the rate is slightly higher than at other lenders,” Pierce says.
However, your current lender’s rates might be significantly higher than elsewhere—which is why it’s always good practice to check out what others have to offer.
Why it pays to shop around when you refinance
If you care less about convenience and more about saving money, it definitely pays to check out refinancing options with other lenders. This takes time, but Pierce says it’s well worth it.
“If you don’t shop around, you won’t know whether your lender is offering a competitive deal,” she says.
Don’t look at just interest rates, though, adds Anastasio. Also compare loan fees, loan repayment terms, and products to make sure the loan fits your needs and budget. In 2020, closing costs for a refinance averaged nearly $3,400, including taxes, according to ClosingCorp, a real estate data provider. Yet they can vary widely, from around 2% to 6% of your loan amount.
Also pay close attention to whether the loan comes with points, which are fees you have to prepay to get a lower interest rate. A mortgage point equals 1% of your total loan amount, and one point usually reduces interest rates by about 0.25%.
“Having all the information, including lender fees and other costs, will help you decide if you should switch mortgage lenders,” Pierce says.
Try to negotiate with your existing lender
In addition to finding a better deal elsewhere, shopping around gives you leverage for negotiating your refinance deal with your existing loan provider.
Should You Refinance With the Same Lender? How To Decide appeared first on Real Estate News & Insights | realtor.com®.