Mortgage rates are now at an all-time low, and this situation creates the perfect time to switch your existing home loan with a brand-new one. It’s worth the shot to shop around and look for new rates lower than the current one.
If you want to refinance your mortgage, you should be aware that you don’t have to stick with your old lender, and you could swap for a new one. In this article, we walk you through the benefits and drawbacks of switching lenders when you refinance your mortgage and the reasons why you should change lenders.
Before we jump into talking about switching lenders, YounGo wants to discuss refinancing your mortgage.
When Is the Right Time to Refinance Mortgage?
When you refinance a mortgage, it means to pay your existing loan and replace it with a new loan. You may wonder why some people consider refinancing their mortgage. The following reasons are mostly the main reasons why homeowners refinance:
- To gain a lower interest rate
- Making the loan term shorter
- To transform from an ARM or an adjustable-rate mortgage to a fixed-rate one or the other way round.
We’ll discuss each one later in this blog.
Is Refinancing the Mortgage Worth It?
There’s a rule that suggests that you’ll benefit from refinancing a mortgage if the new rate is no less than 1%lower than your current rate.
When you want to refinance, you should take your monthly saving into account.
Refinancing the mortgage to acquire a lower interest rate
This reason is considered to be one of the most satisfying reasons to refinance your mortgage. As we’ve mentioned before, finding a loan which can reduce at least 1% of your current interest rate is a win. Using online mortgage calculators can help you budget your costs and make better decisions.
Lowering the interest rate helps you save more money and reduce your monthly payments.
Making the Loan’s Term Shorter
With a lower interest rate, homebuyers can have the chance to refinance their current mortgage without a significant change in monthly payment but maybe a shorter term.
Refinance the Mortgages to Convert Adjustable-Rate to Fixed Rate
As you know, compared to fixed-rate mortgages, the adjustable ones often propose lower rates. However, everything can change due to periodic adjustments. When the changes and this increase happen, switching to a fixed-rate mortgage can be a good idea since you won’t worry about future changes in the interest rate.
Now that you know why it is sometimes vital to refinance your mortgage, you may also consider switching the lender.
In the following paragraphs, we bring you #3 reasons why people sometimes change their lenders and what are the potential pros and cons.
Why Should You Switch to New Lenders?
Change Lenders to Gain Lower Rates
As you know, different lenders offer various loans and have some extra or even fewer requirements than others.
That’s why sometimes searching for another mortgage lender may end up finding better and lower rates.
Closing Costs May be Lower
You might be aware that lenders determine the mortgage’s closing costs, and that can be another good reason for switching to a different lender. However, make sure to look at this subject carefully, as the lender who offers a lower closing cost may have higher rates than your current mortgage.
You Are Not Satisfied With Your Lender’s Service
Know that you don’t have to stick to a lender who doesn’t respond to you well, doesn’t provide you with the services you need, and creates a bad experience for you. If you think you are in the same situation as we described, it may be the perfect time to switch lenders and find the one who is easier to deal with and doesn’t give you a hard time.
Until now, you’ve read the advantages you may get from switching to a new lender.
However, just like anything else in this world, there’s a good side and a bad side to everything, and that’s the reason why it’s a good idea to take a look at the drawbacks of switching to a new lender.
The Cons of Switching to a New Mortgage Lender
You Don’t Know Everything about the New Lender
If you’ve created a good relationship with your lender, it’s not something you can easily ignore. It’s not simple to have someone you can trust with your money. The house you want to buy may be one of your biggest assets, and that’s what double the vitality of finding a trustworthy lender. Switching to a new lender can be risky as you don’t know anything about them, and you may regret it after a while.
We’ve prepared a list of questions that can help you find out whether your current lender is good or not.
- Does your lender fill you in with details about your mortgage?
- Can you feel like they are paying attention to you and what you ask?
- Did they offer you a good rate?
- Are you constantly in touch with them?
When you honestly answered these questions, you can evaluate whether your current lender is responsive or not.
As you know, the prepayment penalty is a fee that some lenders ask you to pay in case you pay your mortgage early.
Not all mortgages have this penalty, and it’s getting less common. However, there are still some lenders who ask you to pay the penalty. Changing your lender may end up in dealing with a prepayment penalty, and that’s why you should read the agreement carefully and look for the “prepayment disclosure” term.
Our Final Words
It’s not mandatory to refinance your mortgage with the lender you already have. However, there are many factors you should take into account and also review your priorities.