How to Find the Best Refinance Companies for Mortgages in 2018
Choice is a good thing — up to a point.
When it comes to refinancing your mortgage, the wide range of lenders available can present an opportunity to save money, but it can also complicate things. The trick is to have an efficient way of processing refinancing information so you can narrow down the field to a manageable number of the best mortgage refinance companies for your situation.
Heading into 2018, conditions for refinancing remain excellent. Thirty-year mortgage rates began 2018 just a hair below 4%, which is lower than they were a year earlier and well below their historical norms.
Certainly, if your mortgage rate is well above 4%, you should take a look at refinancing in 2018. There might be a lot at stake — a paper in the Journal of Financial Economics found that the average cost to households that failed to take the optimal opportunity to refinance was $11,500.
Besides the potential to save money through a lower interest rate, there are other good reasons for refinancing, such as stabilizing your interest rate, lowering your monthly payments or reducing the total interest you will pay over the life of the loan.
What makes one mortgage refinance company better than another?
Finding the best refinance companies starts with understanding what’s important to you. If you’re experienced with mortgages and are only concerned about saving money, you’ll want to focus on finding the lender offering the lowest rate. If you need to close your loan very quickly, you’ll want to look at lenders with a short average close time. If you’re feeling a little overwhelmed by options and information, seek out lenders known for exceptional customer service. So before you start comparing companies and their loan offers, set your expectations.
Use your goals to compare lenders
We asked a LendingTree director who specializes in mortgage refinance how borrowers can find the best refi company, and he said setting clear priorities is crucial.
Laying out your goals first will help you get what you want when talking to lenders. Is saving money your top priority? Or are you more concerned about working with a lender with a reputation for great customer service?
What to look for
The following table can help you keep track of the various quantitative and qualitative pieces of information you should gather about mortgage lenders. (Details on each section follow the table.) While many of these factors may play a role in your decision, your specific goals will determine how much weight to give each component. These are, of course, not all the factors you may consider in your decision, but our refinance expert said these are some of the most significant ways to differentiate lenders.
|Priorities and Considerations|
|Priority||What to consider|
|Cost||APR (includes interest rate, points and fees)
Time it takes to recoup upfront costs
|Speed||Average close time
|Qualification||Lender specialties, like VA loans or loans for borrowers with bad credit|
For many borrowers, the bottom line is cost. If that’s your main concern, then the best mortgage lender for you is the one that offers the best price.
In that case, you’re going to want to look not only at mortgage rates but also whether or not you should pay upfront points when refinancing. Paying points will cost you more on the front end of the loan, but the idea is that doing so will allow you to qualify for a lower interest rate that will save you money in the long run. You can’t simply compare interest rates if one loan offer involves paying points upfront and another does not.
Besides points, there is a long list of fees involved in refinancing, and they can vary greatly from lender to lender. The total of these fees can run into the thousands of dollars, so they absolutely should be factored into your lender comparisons. The annual percentage rate (APR) is a useful figure for factoring in fees and points alongside interest rates to see the overall percentage cost of your loan.
However, when looking at APR calculations, keep in mind that it is assumed that you will pay the loan back over its full scheduled term. If there is a good chance that you might move in a few years or otherwise pay off the loan well ahead of schedule, then you might be better off with a loan that involves paying less money upfront in fees or points, because you will have fewer years to make up for those costs by paying lower interest rates on your loan balance. Do the math to figure out how many months it will take you to recoup the costs of paying points upfront, and whether or not you’re comfortable with that timeline will help you decide if paying for points is the right move.
If you’re concerned about refinancing within a particular timeline, you’ll want to ask lenders about the average amount of time it takes them to close a refinance. It’s also important to ask what percentage of their refinance loans close. Loan officers should be able to answer those questions, our refi expert said. As with everything else, compare information from multiple lenders to get a sense of what your best option is.
Some borrowers are more experienced and more comfortable with the refi process than others. If you need a lot of guidance, try to find lenders with great customer service reputations. There’s no science to this, but checking out customer reviews or asking for referrals are good ways to get to know what it’s like to work with a certain company.
Take note of your early interactions with lenders. For example, look at their websites and evaluate how easy it is to navigate and understand what they’re offering. How readily does a lender make information available to you? How easy is it to understand their descriptions of loan terms? You want to feel you are dealing with a firm that is being very forthcoming with you, rather than one that is trying to hide important information.
Once you start gathering information about a lender, consider how responsive its employees are. How promptly do different firms respond to you? How important does your business seem to them? There is no reason to put up with a company that seems indifferent to you when there are plenty of lenders eager to compete for your business.
Depending on your finances, where you live or any other personal factors, you may want to seek out a more specialized lender. If you’re worried about being able to refinance because of your credit score, research lenders that cater to applicants with less-than-ideal qualifications. There are also some loan programs that serve certain populations, like people living in rural areas, veterans, first responders and more. Think about what sets you apart from the average borrower, and find out if there are benefits to working with a lender who works with others like you.
If rates, fees, points and customer service are all factors you should look at in choosing a lender, how do you find out all that information?
An online resource like LendingTree can help you quickly identify different rate quotes, and also be a source of consumer reviews. Because LendingTree is not a lender itself but rather a comparison platform that works with multiple lenders, it can be an efficient way to gather data.
If you know people in your area who have recently bought a home or refinanced their mortgage, ask them about their financing experience. You might hear a positive or negative recommendation that influences your search. Also, real estate professionals can be useful sources of this type of information, since they see their clients work with a variety of lenders.
Finally, another source of information is the Consumer Financial Protection Bureau’s (CFPB) complaint database. This can help you get a sense of the number and nature of consumer complaints against mortgage lenders, but keep in mind a company’s size when considering the volume of complaints. For information on smaller lenders in your area, check out review sites like Yelp or your local Better Business Bureau.
Compare quotes and pick your best option
Once you’ve clarified your goals and gathered information from a variety of lenders, it’s time to compare your options and make a choice.
Get all your rate quotes within a short period of time. Multiple rate inquiries can be viewed by credit rating agencies as attempts to take out multiple loans, which credit scoring formulas may count as risky behavior (credit scores, after all, are designed to measure a borrower’s risk of defaulting on a loan). However, mortgage inquiries made at roughly the same time (during a 14- to 45-day period, depending which crediting formulas and reporting agencies banks use) count as a single inquiry. This allows you to shop around for the best rates without worrying about damaging your credit. You can search online for refinance offers.
Make an apples-to-apples comparison
Based on your refinancing goals, focus on the type of loan (FHA, VA, conventional, etc.), length of loan and interest rate structure (fixed vs. adjustable rates). Then request quotes for that specific loan type that apply to your credit score, location, loan size and amount of equity.
In response, you should get a detailed written quote from various lenders that includes an estimate of closing costs. Since the trade-off between fees, points and interest rates may vary, focus on APR when considering financial terms. Look at a payment schedule to make sure you are comfortable with what amounts will be due, when they will be due and how quickly you will pay down your loan balance.
Finally, in addition to looking at the immediate fees and interest rate terms, check each mortgage offer for prepayment penalty terms. These penalties can be a real obstacle to refinancing or selling your home in the near future. While prepayment penalties are not uncommon, many expire after a few years so you should see which penalties are less likely to affect you.
Close the deal
If you find you have competing offers that are fairly close, don’t be afraid to negotiate with lenders. Let them know you have options, and ask what they would have to do to get your business. An adjustment to a fee here or an interest rate tweak there could result in meaningful savings for you.
As part of this process, give your existing lender a shot at your refinance business. It is wise to take into account other possibilities rather than limit yourself to considering just your existing lender, but once you know what terms are available from other lenders, see if your existing lender can beat them. Because of the existing relationship, your current lender might be able to waive a fee or otherwise expedite the approval process, and that may make them the most attractive option in the end.
Finally, be advised that some fees can vary between your written estimate and closing, so don’t sign off on the loan before you compare the closing disclosure document to the written estimate. Insist on an explanation for any significant variances.
Refinancing is all about comparisons. The basic idea is that you refinance because you can find a loan that is more attractive than your existing mortgage. Sizing up refinance offers from multiple lenders is just following through on this comparison process. Make sure that you aren’t just getting a loan that compares favorably with your existing mortgage, but also with other loans available in the marketplace.
This article may contain links to MagnifyMoney, which is a LendingTree subsidiary.