Should You Refinance with Your Existing Lender?ReviewAdviceFAQ's

Should You Refinance with Your Existing Lender?

If you're not happy with your present mortgage loan, refinancing can help you score a better deal. Maybe you purchased your house when rates were higher and you want to take advantage of a lower interest rate. Or maybe you want to convert an adjustable-rate mortgage to a fixed-rate. Refinancing also makes sense if you want to cash out your equity to pay off debt or make home improvements, or if you need to remove someone's name from the mortgage. But before you move forward, make sure you understand how refinancing works.

What is a Mortgage Refinance?

Refinancing a mortgage involves the same process as getting the original home loan. The primary difference is that you're getting a new loan to replace the old one. And since it's a new loan, you have to fill out a new mortgage application and go through the steps as if you're buying a new place. This includes waiting for the lender to pull your credit, verify your income, and then determine whether you qualify based on current lending standards. Unfortunately, having an existing mortgage doesn't guarantee you'll qualify for a mortgage refinance. If you do qualify, the next step is choosing the right lender.

There are no hard or fast rules regarding where to apply for a refinance. It's a new home loan and you're free to take your business anywhere. Some people refinance with a different lender because they didn't have the best experience with their present lender. But although you can go anywhere for a new loan, there are benefits to refinancing with an existing lender.

Should You Refinance with Your Existing Lender?

Why Refinance with an Existing Lender?

Mortgage lending is a competitive business. There's a bank on just about every corner, and lenders know you have options. Banks not only seek new customers, they want to retain old customers as well. So, if you have a mortgage with a particular bank and you're a responsible customer who always pays on time, the lender might fight for you. And one of the simplest ways to retain your business is to offer you a fantastic mortgage rate. Your lender might match or beat any interest rate you receive from other lenders.

But this isn't the only way lenders play their hand. They know that closing costs can be a big hurdle when refinancing. Just like the original mortgage, you're responsible for closing costs, which can be 2% to 5% of the mortgage. If you refinance with your existing lender, there's a good chance the bank will waive some of the fees or charge a lower loan origination fee to reduce your out-of-pocket expense. Other lenders might welcome your business, but since you don't have a prior relationship with these banks, they won't bend over backwards to win your business -but your current lender might.

Even if your current lender fights for your business, you owe it to yourself to shop around and compare mortgages. There's no way to guarantee that your lender's quote will be the best. If you don't shop around, you could miss out on additional savings. Get quotes from at least three banks and compare rates, points, closing costs and other mortgage features.

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