How to Choose the Right Lender for a Mortgage Refinance

How to Choose the Right Lender for a Mortgage Refinance article image.

If you're thinking about refinancing your mortgage, there may only be one thing on your mind: securing a lower annual percentage rate (APR). Nabbing the lowest interest rate is a worthy goal, but there are plenty of additional factors at play when it's time to choose a lender.

From miscellaneous loan fees to lender reputation, there's a lot to consider when you're looking to refinance. Read on for insights on how to find the lender that's best for your mortgage refinance.

Should I Consider Financing With My Original Lender?

If you're considering a refinance, it might seem easiest to turn to your existing lender to ask for a lower rate. This is certainly a possibility you should look into, but keep in mind that other lenders out there may be able to provide a better offer.

Refinancing works by paying off your existing mortgage with a new loan, one that often has a lower APR and better terms. Doing this helps you save money on interest over time, and can also help you capitalize on newly lower interest rates.

Working with your current lender could make the refinancing process much easier since they already have all your information. If you've paid on time and proven you're a valuable customer, that may help you negotiate better terms, including a lower interest rate and closing costs. These savings could be even more likely if your mortgage is only a few years old, as all the paperwork and records for the initial transaction might still be accessible.

However, working with your current lender may also have some drawbacks. If you don't shop around, you won't know if other lenders offer better rates and terms. You may also miss out on appealing benefits offered by another lender.

How Can I Find a New Lender?

The key to finding the best refinance deal is to get rate quotes from different lenders so you can see everything that's available. The internet has made this search process easy, but historically, you'd have to work with a mortgage broker or directly with a bank associate to find the best deal.

How you find a new lender will ultimately be up to you, but here are a few ways to go about it:

  1. Work with a broker. A mortgage broker is someone that works with many mortgage lenders and can show you deals from each to find you the best fit. Since brokers work for multiple lenders, they can guide you to the best deal for your situation.
  2. Work with someone from your bank. Banks that offer mortgage loans can connect you with a representative who specializes in mortgage and refinancing options. This specialist should be able to guide you to the best option the bank has for you, but they may leave out how their options compare to the rest of the market. Use this option if you already know what lender you want to work with or if you've researched interest rates and know what else might be out there.
  3. Research on your own. The internet can be a great resource for people shopping for refinancing deals on their own. You can use an online broker, which can help you compare deals from multiple different lenders and find the best option much like a human broker would. Researching on your own can, however, be time-consuming as it requires you to take a detailed look at every lender and read through the fine print on each deal to make sure there are no hidden conditions.

What Should You Look for in a Mortgage Lender?

When searching for a new mortgage lender, you'll want to feel comfortable working with whomever you choose. You may find a lender that doesn't quite offer the best rates but is able to win you over with excellent customer service and reliable communication. The right lender for you probably has some combination of the following, preferably all three:

  • Lowest interest rate: When you refinance, your new loan will be assigned a new interest rate. If the goal of your refinance is to find a lower interest rate, keep your eyes open for the lowest one and make sure lenders know it's a priority. Because a mortgage loan is so large, even a small change in your interest rate can end up saving you a lot of money over time.
  • Lowest fees: Each mortgage comes with fees that tend to vary by lender. Look out for two types of fees: upfront fees (closing costs) that you'll pay when the refinance agreement is signed, and ongoing fees such as charges for late payments, early repayment and more. If you're refinancing to save money, make sure the refinance fees don't exceed the savings you'll realize.
  • Great customer service: When looking for a new mortgage lender, seek one that you feel has good customer service. You'll interact with your lender beyond just the application process—you may need to troubleshoot your loan later on, for instance—so you'll want to feel comfortable with the company. Take note of how responsive they are, how they handle your issues and whether you feel a personal connection or comfort with the agents you speak with.

After you apply for a loan, lenders are required by law to provide you with a "good faith estimate," which should outline the rates and fees included in the loan. This estimate will also outline closing costs and give you a clear idea of how much refinancing will cost with that lender. Lenders must provide good faith estimates within three business days of receiving your application.

How Will You Know if a Lender Is Right for You?

Once you've found a few options that look good, think about what's most important to you in a lender and select the one that closely matches that. If you haven't already, read the lender's reviews to see what customers think of their service.

You'll want to make sure you're working with a reputable lender, so be sure to research the company you choose to work with. Check the Consumer Financial Protection Bureau's list of consumer complaints to see what, if anything, people are saying about your lender.

Check Your Credit Before Applying for Your New Loan

Before you start the refinance process, you should check your credit reports and scores to get an idea of what lenders will see when evaluating your application. If you don't like what you see, you still have time to address the negative factors on your credit report before submitting your refinance application.

Remember, the process of refinancing is very much like applying for a conventional mortgage, and the better your credit score, the more likely it is you'll be able to get the best terms on your new loan. If you have good credit, use this to your advantage and try to negotiate with the lender for the best APR and terms possible.

If you check your credit and see any inaccurate information, make sure to begin the dispute process with any of the credit bureaus (Experian, TransUnion or Equifax) where the mistake appears. You can get a free copy of your credit reports and scores from Experian to see what shape your credit is in. Experian credit monitoring can help you better keep tabs on your credit and will quickly alert you to potential fraud or identity theft.