How to Find the Best Refinance Companies for Mortgages in 2019
Refinancing your mortgage can put you in a better financial place by replacing a current loan with one whose lending terms work better for you.
It still makes plenty of sense to consider refinancing: While mortgage rates have come up from a year ago, the average rate for a 30-year mortgage is now only about 4.5%, which is still far below historical standards.
Before you consider refinancing, determine your priorities. Are you looking for a lower monthly payment, faster time to pay off your loan or a lower interest rate? Refinancing may make sense if your current mortgage rate is well above 4.5%. If you bought your home when interest rates were considerably higher, your new loan may come with a lower interest rate or a different repayment term, which could potentially lower your monthly payment and save tens of thousands of dollars over the course of your loan.
Still, refinancing costs can add up, and these are charges you’ll need to pay up front. Before shopping for a refinance company, remember that refinances also come in two basic flavors: traditional and cash-out.
With a traditional refinance, you’ll be taking out a new mortgage for the same amount of money as your current mortgage balance but on different terms, such as a lower interest rate, a fixed interest rate or a shorter or longer repayment period.
A cash-out refinance might make more sense if you’re also looking for extra cash, like money to pay off debts, a home renovation or college costs. A cash-out finance only works if you’ve built up equity in your home. You’ll take out a new loan for a higher amount than your current mortgage and use the cash difference for other financial needs.
What to look for in a mortgage refinance company
When it comes to a mortgage refinance, “People tend to just call up the bank where they have other accounts,” said Richard Barenblatt, a senior mortgage banker with GuardHill Financial Corp. in New York City.
If your priority is to lower your interest rate or get the lowest monthly payment possible, this may not be the best approach. Instead, you will want to collect multiple offers from different lenders, including your current lender. You can start your search with online tools, such as those at LendingTree. Meanwhile, treat refinancing just as you would buying a home, and look for advice from people you respect, Barenblatt said.
If saving money is a top priority, you might be tempted to go with the company that offers you the lowest interest rate. But remember, if that company is slow to process your refinance, you’ll need to keep making mortgage payments at a higher interest rate until your new loan is closed.
When shopping for a refinance company, consider:
Differences in interest rates
Mortgage rates vary by lender, and even a small difference in rate can mean big savings over the long term. Your credit score will also determine what interest rates are available to you. Generally, lenders like to see a score of at least 620. In November 2018, mortgage originator Ellie Mae found that 69% of the refinances recorded in its system had FICO Scores over 700.
As with any primary mortgage, It’s also important to consider whether your loan will have a fixed or adjustable interest rate. If it’s adjustable, check to see how often the rate is adjusted and what it might do to your monthly payment. According to a toolkit provided by the Consumer Financial Protection Bureau (CFPB), your payment could increase by hundreds of dollars per month with an adjustable-rate mortgage.
Differences in closing costs
As with your original mortgage, you will need to pay closing costs with a refinance. These costs typically include:
- Loan origination fee. This is the fee lenders charge to process your loan application. For a refinance, it is usually 1% to 1.5% of your total principal costs.
- Home appraisal. You will need a new home appraisal because the value of your home may have changed since you took out your original mortgage. Home appraisals are typically $300 to $400 for a single family home, but they could be higher depending on where you live.
- Home inspection. Depending on the requirements of your lender, you may also need to complete a new home inspection. According to the Department of Housing and Urban Development, the cost typically ranges from $300 to $500, depending on where you live and the size of your home.
- Title insurance. Lenders require title insurance in case there are any issues with title ownership. The average cost of title insurance is around $1,000, depending on where you live.
- Credit report fee. Lenders typically charge a fee for pulling your new credit report. According to the Consumer Financial Protection Bureau, the credit report fee is typically less than $30.
While talking with different mortgage refinancing companies, ask about their typical closing costs so you have a clear basis for comparison.
Poor customer service can be frustrating and cost you time, so set your standards high as you interview different mortgage refinance companies.
Many mortgage refinance companies are now using more digital tools like websites to bring in customers, but you’ll need to decide if added digital know-how is effective.
For example, how easy or difficult is it to navigate the company’s website, and if you have a question, can you find an answer quickly? Does the site list frequently asked questions, and if so, are they easy to find, with easy-to-understand answers? Does the site have an easy way to reach someone if you have more questions?
To find a refinance company with stellar customer service, Barenblatt recommended using the same approach you would for finding a new doctor: asking family members and friends first, then checking reviews online.
The CFPB offers a public database that tracks both the number and type of complaints filed against mortgage lenders.
Complaints are added to the database after the company has either responded or had the complaint for 15 days. Because of size or market share, larger companies may have more more complaints lodged against them than smaller firms, so the CFPB urges consumers to factor these differences into their lender decisions. You can also check the site that LendingTree offers for lender reviews.
Barenblatt recommended consumers also look beyond the interest rate for a refinancing loan. “You really want to work with someone where you feel you’re in safe hands. And not somebody who simply leads with advertising a lower interest rate to get the business,” he said.
After all, he added, consumers who hope to refinance need to remember that the “advertised rate is not necessarily the rate they’re going to close with.”
Ask potential refinance companies how long it typically takes for their refinances to close. In November 2018, mortgage originator Ellie Mae, using the data it collects, found it took an average of 43 days for mortgage refinancings to close.
A loan officer should also be able to tell you what percentage of their refinances close. According to the Ellie Mae report, refinance closing rates decreased to 64.1% in November from 64.9% in October. By contrast, closing rates for buying a house dropped to 74.1% from 76.4%.
Areas of specialization
Consider working with a lender that specializes in certain types of consumers. For example, some lenders specialize in working with people who have less-than-perfect credit. Others specialize in programs for veterans or rural residents.
How to compare quotes
First, get a range of quotes from different lenders by taking the following steps:
- Talk to your current lender. Working with your current lender may speed up refinancing since your personal and financial information will already be on file. However, your new loan will still need to go through the underwriting process. If you find a better rate from another lender, your current lender may be willing to match it.
- Work with an independent mortgage broker. An independent mortgage broker works with several lenders, and they may be able to help you get quotes for comparison. Mortgage brokers charge a fee for this service, which may be paid at closing, as an add-on to your interest rate or both.
- Use an online marketplace. Online marketplaces like LendingTree allow you to compare lenders based on rates, fees, and other terms. You can also view lender reviews on LendingTree’s website. For local firms, check for complaints with your local Better Business Bureau.
When applying to refinance, keep in mind that lenders are required to give you a loan estimate within three business days of your application.
Make it easy to compare quotes
First, ask for the same type of quote from each lender. As with a primary mortgage, a quote for a 15-year, fixed-rate refinancing mortgage will be different from a quote for a 30-year, adjustable-rate mortgage.
As you review each quote, focus on the following just as you did with your previous mortgage:
- APR. Your annual percentage rate (APR) will include your interest rate, as well as any other potential fees, like points and most closing costs. This should give you a bottom-line basis for comparing lenders.
- The loan term and rate type. As you compare monthly payments, pay attention to whether the estimates are for different loan types or for fixed-rate versus adjustable-rate mortgages. With a longer-term loan, you will have lower monthly payments but also pay more in interest over time.
- Points. Points are an upfront fee that may come with any mortgage, typically in exchange for a lower interest rate. Points usually equal 1% of the loan amount. So if your refinance is for $100,000 and you’re paying two points, you can expect to pay $2,000 more as part of your closing costs. The discounted interest rate will vary from lender to lender.
- Monies due. Your loan estimate will include a total of how much money is due at closing.
- Prepayment penalties. Some lenders will impose a prepayment penalty if you pay off your mortgage within a certain timeframe, such as less than three years. Look carefully at potential prepayment penalties, especially if you think you might sell a refinanced home soon.
You have 10 business days from the day the lender sends you the loan estimate to proceed with the refinance, according to the Consumer Financial Protection Bureau. If you don’t move forward, your application may be closed as incomplete, and you would need to finish a new application if you decide to move forward later.
The benefits of shopping around for a refinance
Shopping for the best refinance company takes time but can save you thousands of dollars over the life of your loan.
Let’s say you bought a home in January 2009 for $250,000, with a 30-year fixed-rate mortgage at 5% interest. That home is now worth $300,000. If you refinance for a 30-year fixed-rate mortgage at 4.3%, you’ll save $175,903 over the lifetime of your new loan, and your new monthly payment will be $338 less per month.
While comparison shopping, you may find a lender who will offer you the same loan but with a 4.2% interest rate. This may seem like a relatively small difference, but with this loan you’ll save $180,178 over the life of the loan. That’s a $4,275 difference.
A third lender might be willing to offer you the loan at 4% interest. That gives you a lifetime savings of $188,651, which is a nearly $13,000 difference over the life of the loan compared to your first refinance offer of 4.3%.
Take the time to research your potential lenders, and don’t be afraid to ask questions. A good lender will be happy to answer all questions about the refinancing process. In the meantime, check LendingTree’s refinance calculator.