Compare Refinance Lenders in March 2023

A mortgage is essentially a loan from a lender that helps the borrower purchase real estate, where the property bought is used as collateral. A mortgage refinance takes your current mortgage and trades it for a new loan. The lender then pays off the older mortgage and you make the payments on the new mortgage.

Take a look at why to refinance and your reasons for wanting to do so. Look at current interest rates, costs, and the time frame it’ll take you to own your property. Make sure it makes sense financially because you might wind up paying more long-term if you’re refinancing for a better rate. Take a look at the different fees and costs that’ll be applied if you refinance. Also, how much equity do you currently have in your home? How much interest have you already paid? How long do you have on your current mortgage?

While there are multiple reasons someone would choose refinancing a mortgage, it’s normally to save money. You might want to shorten the term from 30-years to 15-years. This will have you pay more monthly even if you have a lower interest rate. It’ll decrease the amount of interest you pay over time since you’re paying it off quicker.

Another reason is to be done with mortgage insurance. When you don’t have the 20% necessary for the down payment, many mortgages will make you pay mortgage insurance to protect themselves in case you default on your payments. Many look at the lower interest rates currently, and choose to refinance to save money. This will then lead to smaller payments every month.

Some decide to move forward with refinancing because they want to consolidate debt or do home improvements. If you have a good amount of equity built into your home, that’s cash that can be used as collateral for another loan. This helps you pay off any debts or consolidate them.

Another reason to refinance is to remove or add a borrower. Whether it’s canceling a partnership, getting married, or getting a divorce, there are many reasons to head this route.

• To get a lower interest rate
• To lower your monthly payment or pay less over the course of the loan
• To shorten the loan term
• To pay off your loan sooner
• To change the loan types
• Moving from an FHA loan to a conventional loan to remove mortgage insurance premiums
• To change rate types
• Avoiding higher interest rates before the end of the intro period
• To take cash from your home equity
• To pay for home improvements or consolidate your debt
• To update a borrower
• To add or remove a borrower based on a life event such as divorce or marriage

Conventional loans

• usually have the hardest underwriting requirements

FHA loans

• loans guaranteed by the federal government, reducing the risk to the lender and making them easier to qualify for than a conventional loan.  An FHA loan requires as little as 3.5% as a down payment

USDA loans

• loans that help low to moderate income borrowers purchase homes in rural areas.

VA loans

• loans that help service members, veterans, reserves or National Guard borrowers purchase homes with little or no down payment and no private mortgage insurance.

Additional Programs

• There is a refinance program called the IRRRL program (Interest Rate Reduction Refinance Loan) that allows those with a VA loan to refinance into a new VA loan.
• Special mortgages may be available to residents of a particular state or city, or to individuals in certain professions, such as nurses, teachers, firefighters or police officers.

Here is a good list of additional costs you can may incur throughout the mortgage refinance process:

• Appraisal fee
• Home Inspection
• Flood determination assessment
• Application fee:
• Credit report fee
• Origination fee
• Attorney fees
• Mortgage broker fee
• Prepaid interest
• Discount points
• Lender’s policy title insurance
• Owner’s policy title insurance

The process itself typically takes 30 to 45 days on average, though it can take up to 60 days in some instances.

Below are all the steps that go into the refinance process:

• Preapproval
  • Finding out how much you can borrow through a conditional, non-binding offer from a lender
  • Application
  • Name
  • Address
  • Employer Name
  • Your Annual income
  • SSN
  • Property address (if different from your primary address)
  • Type of home (single-family, multi-family, condo, etc.)
  • Estimated property value
  • Any HOA fees
  • Total loan amount that you requested
• Filling out a loan application that includes basic information such as:
  • Verified Documentation
  • Identity
  • Assets
  • Employment status
  • Income statements
• With your application, you will need additional documents to verify your application such as:
  • Loan estimate
  • Lenders are required to give you an estimate of what your loan might cost upon verification of your loan application details.  This is to be provided within 3 business days of receiving this application.
  • Processing
  • Credit report
  • Appraisal
  • Report on the title
• A mortgage processor will order the following:
  • Home Appraisal
  • Square Foot of Lot
  • Location
  • Amenities
  • Physical Condition
• A professional appraiser will estimate the value of the property you are refinancing.  Some of the factors taken into account are the following:
  • Underwriting
  • An underwriter determines if the loan is accepted
  • Closing disclosure
  • Projected monthly payments
  • Closing costs
  • Loan term
• Your lender is required to give you a closing disclosure within 3 business days of finalizing your loan.  This details the terms of your mortgage and includes:
  • Closing
  • You will sign the legally binding documents that make the mortgage official

Mortgage loan terms are the amount of time in which a borrower makes monthly payments toward a home loan with most being paid off in 15 or 30 years. There are, however, other loan terms available. A rule of thumb is that borrowers will get a 15 year mortgage if they want to pay less in interest over the life of the loan and those that get a 30 year mortgage are looking for lower monthly payments.

This is the ratio of your monthly income divided by your monthly debt payments that includes the mortgage itself.  Typically, conventional loans can be approved with a DTI up to 49%.

You need to factor in your debt-to-income ratio, your credit score, down payment and the loan size to truly understand what type of interest rate you can get.  You can also get lower interest rates by paying upfront for discount points that cost 1% of your total loan amount.

These points allow you to pay an upfront fee to reduce your interest rate. The more you pay upfront, the lower your monthly payments. These points are different than a down payment in that the down payment is applied to the principal whereas the points apply to the interest. A down payment builds equity in your home while mortgage points don’t help you build equity, but helps with your monthly expenses.

Private Mortgage Insurance protects the borrower from liability if they fail to make payments. Many lenders will require this if the borrower’s down payment is less than 20%. An FHA loan is a way to get around paying for PMI, as this only requires a 3.5% down payment.

A hard pull of your credit score does cause your score to dip a few points, but is required for pre-approval. However, if you are shopping for a mortgage and more than one lender makes this hard inquiry within 45 days, they know you are looking for the best rate and the inquiries only count as a singular pull.

The best mortgage or refinance lenders really depends on budget, location and if you like to conduct your business 100% online or with loan officers in person. There are big banks that offer many types of loans and will service your loan without selling it off. Some of these banks offer discounts or credit card points for customers that take out mortgages with them. Other lenders include small local lenders that are more familiar with the area and real estate in the area, whereas online lenders could give you better rates and lower fees due to lower overhead costs. Credit unions offer other advantages over banks and local lenders as their lending requirements aren’t as strict as a banks due to a typically more lenient income requirements. Credit unions often have lower fees and rates than other lenders as they are predominantly non-profit. The downside to going through a credit union is that you have to be a member to borrow.

Credit score is a huge factor for getting a mortgage or refinance and a 620 is generally looked at as the lowest acceptable FICO score for a conventional mortgage. If your credit score has improved since you originally got your mortgage, you might consider refinancing as you have the potential to save on your monthly payments by getting a lower monthly payment.

Typically, to find the best mortgage lender you should compare multiple options that suit your financial situation.  Below are some factors you should consider as you go through the process of comparing lenders:

• What are the financing options that the lender is offering?
• What type of interest rates is the lender offering and are they competitive?
• Are the closing costs reasonable compared to other lenders?
• How is their customer service rating?

You can save money on your taxes by deducting some of the costs incurred during refinancing.  These costs include the following:

• Mortgage Interest
  • You are able to deduct all mortgage interest you paid on the first $1 million of your home loan and interest paid on home equity or home improvement loans up to $100,000
• Property Taxes
  • If you paid money toward property taxes at the closing of the refinance, you can deduct the amount you paid on your income tax return for that year.
• Points
  • You can deduct any points you pay to lower your mortgage interest rate from your taxable income.  With refinancing, you will need to be sure to divide the points evenly over the loan term. For instance, if you paid $3,000 toward points on a 30 year loan, you can only deduct $100/year following your refinance.

A mortgage refinance is great for all the reasons outlined above, but there are times when it may be better to avoid refinancing and keep your current loan:

• You’ve already paid most of the interest off and are building equity in your home
• If there is a big prepayment penalty on your current mortgage
• If the amount you will save is not as much as the fees you will pay to refinance
• If you are looking to sell your home in the next few years (before you break even on the cost of refinancing)

If you decide to follow through with appraising your home, keep in mind that there will be many fees such as your property evaluation fees which can add up.
Some top mortgage refinance lenders may tell you property evaluation fees can include a flood determination assessment, appraisal fee, and inspection.

Property Evaluation Fees

If your lender requires an inspection, you’ll have to pay out of pocket for one. This can include a septic inspection, termite, water quality test, or a home inspection.

• A flood determination assessment will tell you if your property is in a flood zone
• If you go with the same lender as your original loan, you might not be required to have this assessment
• An appraisal fee will protect the lender and ensure they don’t lend more than they need to for your home. This will be a professional assessment that you’ll normally have to pay for.

Loan Fees

• Your loan fees can include your application fee, attorney fees, and others.
• An application fee is where you’ll pay lenders a fee for taking a look at your application.
• They can also charge you for what’s known as an origination fee. This is where you’ll pay for administrative costs for starting a new mortgage.

If you decide to go with a broker, you’ll have a mortgage broker fee. They’ll help you find the best mortgage for you. They can be part of your loan or part of the closing costs.

You’ll need to pay for an attorney if you hire one, who will review the terms of your mortgage agreement. It’s not required in every state, so speak with a lender to find out the requirements.

Another refinancing cost you may have to pay is prepaid interest. Once you close, interest on a mortgage begins to develop. Many lenders will ask you to pay the interest upfront.
If discount points are applied you’ll need to pay these as well. Discount points allow you to qualify for a lower interest rate.