Should you refinance with your current mortgage lender?

Millions of buyers are rushing to take advantage of the historically low-interest rates brought on by the coronavirus pandemic. In fact, the increasing numbers are causing some delays in closing mortgage refinances. While most refinances take about 30 days, you may now have to wait six to eight weeks for your application to process and complete.

While it’s essential to move quickly if you want to take advantage of the lowest possible rates, it’s even more important to make sure you’re getting the best rate possible. Further, since all mortgage refinances filed after Dec. 1, 2020, will be subject to an adverse market fee, there’s no need to rush to submit your application before a specific date.

If you need additional motivation to take your time and do a bit of homework, keep in mind that the Federal Reserve announced that they would likely keep interest rates near 0% until at least the end of 2023. While rates could go up before then, you have sufficient time to talk to multiple lenders or review multiple offers before moving forward.

Is it better to refinance with your current lender?

In short: It's not necessarily better to refinance with your same mortgage lender. If you like your current lender, it could be tempting to apply for a refinance with them and ignore other lenders. After all, it saves you the trouble of changing your mortgage company, filling out more documents, or learning new processes.

But making a decision based solely on convenience could be a costly mistake.

When you work with your current lender, their focus is likely retention, but that doesn’t necessarily mean they’ll offer you the best deal. Your existing lender may provide you with a lower rate than you currently have, assuming you’re happy to take their lower rate because it’s convenient.

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Should you go to another mortgage lender?

New lenders are fighting for your business, which means they are more likely to offer better incentives with their refinances. While your lender could come out on top, you should compare rates from at least three different lenders.

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You’ll spend more time getting quotes from lenders, but the extra hour or two of research could save you tens of thousands of dollars on your loan.

How do I qualify for the lowest rates?

As a consumer, you have a lot of control over the type of mortgage rates you qualify for. While you can’t control the market, there are at least three things you can do to ensure you get the best rates possible.

1. Compare rates and lenders
2. Choose a shorter loan term
3. Improve your credit score

1. Compare rates and lenders

One of the easiest ways to save on your mortgage refinance is to check out multiple lenders. Interest rates and fees vary between companies and even locations, so talking to numerous companies or negotiating terms with your first choice could save you thousands of dollars. You can use an online tool like Credible to compare rates from multiple lenders in one spot.

2. Choose a shorter loan term

Lenders offer lower rates to borrowers who opt for shorter-term loans because they present a lower risk. At publication, the average 30-year fixed-rate loan is 2.67%, while the average interest rate for a 15-year fixed-rate loan is 2.17%, according to Freddie Mac. Your loan payments will be higher, but you could save tens of thousands of dollars by paying your loan off faster.

3. Work on your credit score

Borrowers with high credit scores and a healthy credit history qualify for the best interest rates. You can bump up your credit score by reducing consumer debt, paying all your bills on time, and removing errors from your credit report.

If you’ve recently paid off debt, you could opt to include monthly payments like utilities and your cell phone bill on your credit report. As you make these additional payments on time every month, you can get a boost in your credit score.

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Other costs to consider

As you’re planning a refinance, remember that a mortgage refinance is the equivalent of taking out a new loan, and that new loan comes with fees. Most lenders charge about 1% on all refinances. Additionally, all new refinances will pay an adverse market fee of 0.5%. This fee applies to all refinances over $125,000.

For refinances of $300,000, that’s a total of $4,500. Consider using an online mortgage calculator to determine your new monthly costs and how long it will take to break even on your refinance.

Make sure to take the time to research, so your lower interest rate saves you the most money possible. You can get all your questions answered by connecting with qualified lenders on Credible.

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