Q: I’m thinking of refinancing my home. The current rate on my 30-year, $229,000 loan is 5.75 percent. To get the best interest rate on my refinance, do you recommend I directly contact a bank with which I already have a relationship? Or, should I go with a mortgage broker I don’t know.
A: One of the biggest mistakes homeowners often make when refinancing a mortgage is not shopping around. While it seems as if all loans should cost the same since Fannie Mae, Freddie Mac, and FHA purchase more than 90 percent of all loans on the secondary market, in fact, each lender has its own set of rules, regulations, programs, costs and fees.
You will find great variety in loan programs and costs, so shop around and don’t limit yourself. You should speak to four or five different types of lenders, including big national lenders (I call these the “big box” lenders), a mortgage broker (ask your real estate agent for a few referrals), a credit union (if you belong to one or can join one), a local lender that portfolios mortgages (holds them for its own investment and has more flexibility with program rules) and an online lender.
By all means, start your shopping by chatting with your current lender. If your current lender has a loan program that will save you money or if the lender is willing to modify your loan for a few hundred dollars, that would be great for you.
These days, however, your current lender may only be servicing your loan and the actual loan is held by another institution. In that case, your process of applying and obtaining a new loan from your lender will be as if you are starting from square one.
If you check around, you may find that the rates may be similar for a loan that you may want, but please watch the fine print and the fees associated with the loan. Some fees may be the same from lender to lender, but other non-standard fees can be quite high at some lending institutions. Be careful and ask lots of questions.
Plan to spend some time shopping around for your new loan – it’s the only way I know of to get the best mortgage deal.