If you are in the market to refinance, you should get quotes from at least three lenders. If you have never compared loan offers before, it can seem overwhelming. It’s an important part of the process, though, so that you can make sure that you get the most for your money when refinancing.
Keep reading to learn the steps you should take to compare offers.
Get at Least 3 Offers
First, we highly suggest that you get at least three different offers from lenders. This way you can weed out the lenders that charge crazy high fees and interest as well as those that seem crazy low. You want the lenders that offer the average rate and costs for your area.
You can shop with private lenders, big banks, or even mortgage brokers. One of the advantages of using a mortgage broker is that he/she can probably give you multiple quotes from different lenders because they usually work directly with hundreds of lenders.
Compare the Same Loan Types
Now once you have these offers, you need to figure out what the lender is giving you. If one lender quotes you an ARM loan and another gives you a quote for a fixed rate loan, they aren’t the same thing. You shouldn’t compare them.
Try and ask lenders for the same type of quotes. For example, if you know you only want a fixed-rate loan, ask for that quote. If you want an ARM or you want to see the difference between the ARM and fixed-rate loan payment, ask for them specifically.
When you compare the loan offers, pair up the like terms and mortgage types in order to make sure you are really seeing the big picture.
Look at the Closing Costs
While it’s tempting to go straight to the interest rate, the closing costs play an important role too. Ask yourself:
- How many origination points are they charging?
- Are they charging any discount points to get the rate that you want?
- What other fees does the lender charge for their own purposes?
- What third-party charges are there, like appraisal and credit reporting agency fees?
You can then compare each fee on each offer you receive. Don’t assume that the offer with the lowest closing costs is the answer, though. It’s a complicated puzzle.
Look at the Interest Rate
Now that you have an idea where lenders stand with their closing costs, compare the interest rates. Are they around the same? Is one higher than the other? If there is one higher than the other, look at the closing costs. Are the closing costs lower with that lender? That could explain the higher interest rate. You can always ask lenders where they have room for negotiation. Some lenders will agree to charge more closing costs (points) in exchange for a lower interest rate.
You have to figure out what means the most to you, though. Do you want the lower interest rate or would you rather have minimal closing costs? If you plan to stay in the home for the entire loan’s term, we would suggest taking the lower interest rate. This way you pay less interest over the life of the loan. The closing costs are a one-time fee. If you are only going to be in the home for the short-term, though, taking the higher interest rate and lower closing costs may make more sense since you won’t pay the interest for very long.
Don’t Forget About Customer Service
While this doesn’t affect your payment in any way, you want to know that you are doing business with a reputable company. You especially want to know who the loan servicer will be as that is who you will deal with on a regular basis.
Your loan servicer processes your payments and handles any customer service related issues that you have. Do your research on the loan servicers to see what others have to say. Do they like the servicer? Are they prompt? Do they handle issues right away? These are things you want to know, as there is nothing more frustrating than dealing with a loan servicer that doesn’t help you, especially when you are dealing with a large mortgage in the hundreds of thousands of dollars.
It’s vital that you compare loans when you shop around for a refinance. If you don’t like the quotes you get, keep shopping. It’s a great way to make sure that you get the loan that suits your needs the most. It also ensures that you don’t overpay for a mortgage.