Should You Refinance With Your Current Lender Or Find a New One?

You might have received notices about refinancing from your mortgage company or servicer (the company you make payments to) and wonder what options you have.

Should you refinance with your current lender? Will they offer the best rates? Are you even allowed to switch companies?

Check today's refinance rates.

Your Current Loan Servicer May Not Be Your Original Lender

The company that you make your mortgage payments to may not be your original lender. After closing, many lenders transfer their loans to mortgage servicing companies that handle all aspects of customer service and payment collection.

Your lending experience may not be the same if you’re now working with a servicer, and not all loan servicing companies offer mortgages. Some focus solely on the administrative responsibilities after funding.

Always Shop Around for Quotes

Lenders don’t always offer the best rates to their existing customers right away. Oftentimes, they'll provide borrowers with a rate lower than what they currently have but still higher than what would be offered to new applicants.

They might entice you with an easier loan process since they have all your information at the ready. But it’s worth some extra hassle to save 0.25% on your refinance rate, for instance.

Even if you plan to refinance with your current lender, you should always shop around for lower rates. You want at least three quotes for comparison to secure the best deal.

When you speak with your current lender's loan officer or retention specialist, let them know that you're shopping around for quotes and ask them to beat any competing offers.

Will Applying With Multiple Lenders Hurt My Credit?

With loans that customers typically shop around for – like mortgages and auto financing – credit bureaus combine multiple checks into one single inquiry. While newer scoring formulas allow for rate shopping over 45 days, FICO recommends shopping around for quotes within 30 days to minimize the impact on your credit.

You can also ask a lender to start the process with a soft credit pull if you just want to check rates and fees. A soft pull does not appear on your credit as an inquiry nor does it affect your score.

It’s Not Just About Interest Rates. Consider Fees, Too

Refinancing isn't just about getting the lowest interest rate. Other factors go into loan pricing, and the offer with the lowest rate isn't always the best deal or choice.

You also need to consider closing costs. Some lenders charge more than others, especially for:

• Application fees

• Origination/underwriting fees

• The cost of points included in the quoted rate

A loan's annual percentage rate (APR) is a better metric for comparing different mortgages. The APR represents a more accurate yearly loan cost, including fees, closing fees, and discount points.

Also, some mortgage companies have more flexible policies about closing costs than others. If you're low on funds and need a "no closing cost" refinance, you may be unable to go with the lowest-rate lender.

Get a personalized rate and fee quote.

Using Your Existing Lender Could Reduce Out-Of-Pocket Expenses at Closing

One benefit of sticking with your current lender is that you may not need to bring quite as much to closing. While not technically closing costs, lenders require you to fund future property taxes and homeowners’ insurance in escrow as part of the closing process.

When you refinance with a new lender, you'll need to fund these escrow accounts, even though you already have a similar amount in escrow for your current loan. Your previous lender will send you a refund check shortly after closing, but you'll still need to float the cost.

However, if you stay with your current lender, they may be able to transfer existing escrow accounts to your new mortgage. This could reduce your closing dollars significantly. For example, prepaying six months of property taxes at $500 per month is $3,000. This, plus up to 15 months of homeowner’s insurance could be eliminated from your out-of-pocket expense.

Other Reasons to Refinance With Your Current Lender

Even if they don’t offer the best rates, there are still some other reasons you may choose to refinance with your current lender:

• You’ve had a good customer service experience with past questions or issues

• You had a good experience with your previous loan officer and can work with them again

• You’re already familiar and set up with their payment system

• Your lender is a local bank or financial institution that you do other business with

Still, remember that refinancing is about saving money. It’s essential to shop around and obtain multiple loan quotes even if you are satisfied with your current mortgage company.

Negotiate With Your Current Lender

Like any industry, lenders have a cost associated with attracting new customers. It's easier and cheaper for your current lender to keep your business than it would be for them to attract new borrowers. As such, you have more leeway to negotiate a discount on closing costs, such as application and origination fees.

When you have multiple quotes from other mortgage companies, your lender will know you’re serious about refinancing and be more willing to offer you a competitive deal.

When Your Lender Doesn’t Offer the Type of Loan You Need

Not all lenders offer the same mortgage products. Even though a company works with Fannie Mae, the FHA, or any other organization, they may only offer some of their loan products or add their own extra rules that disqualify you.

Shop around if your current lender can’t approve your refinance.

Can My Lender Lower My Interest Rate Without Refinancing?

In some instances, lenders can offer loan modification to borrowers who have trouble meeting their financial obligations. You don't necessarily need to be behind on your mortgage to qualify. Still, you typically need to demonstrate that you're facing economic hardship. Modifications can also affect your credit.

However, there may be some situations where your current lender can lower your loan's interest rate without going through the refinancing process. This is most likely possible when your original lender has retained the loan and services it themselves, such as with a community bank or local credit union.

Pros and Cons of Refinancing With Your Current Lender

Are you still deciding whether it makes sense to refinance with your current lender? The answer will depend on your individual situation, but here are some pros and cons to consider.

Pros of Refinancing With Your Current Lender

• They’ll be more eager to negotiate on the rate and fees to keep your business

• Refinancing could be slightly quicker as they already have information on file

• Your escrow account may be able to be transferred, lowering the cost of closing

Cons of Refinancing With Your Current Lender

• The first rate they offer likely won’t be the best

• They may not handle all loan types like streamline refinance or renovation refinance mortgages

• Your current loan servicer might not be the same lender that originated your mortgage

Refinance With Your Current Lender or a New One?

When it comes down to it, the decision to refinance with your current lender or a new one will depend on the rates they offer, the service you've received, and the loan programs you're looking for.

But even if you’re happy with your current mortgage company, shopping around and obtaining multiple different quotes will ensure you’re getting a fair rate and have the leverage to negotiate the best deal possible.

Get rates from a new lender to compare with your existing quote.