by Joseph Flannery | Aug 29, 2018
If you have a mortgage, there is a good chance you’ve been approached with offers to refinance from your current lender.
You may think, “Since they’re my current lender, they’ll be able to offer me the best deal.” Think again.
Blindly staying with your current lender is one of the biggest mistakes you can make when refinancing.
Here’s why:
Your lender, is actually not your lender. They are your servicer.
The truth is, your lender does not own your mortgage. There’s a lot of confusion about the ownership of your mortgage and it’s a little technical, but I’ll try to simplify.
When you bought your home, your mortgage was sold. Most likely, your mortgage was sold to one of the three largest buyers of mortgages: Fannie Mae, Freddie Mac, or Ginnie Mae. (Learn more about how banks earn revenue here)
The lender that sold your mortgage retained the servicing rights to your loan. Thus, your “lender” is not the owner of your mortgage but is technically your mortgage servicer.
The holder of your mortgage, let’s say Fannie Mae, then pays your servicer a premium to collect payments from you. Often these servicing premiums are the greatest source of revenue for large mortgage companies.
So when you refinance, your current servicer must qualify your mortgage just like any other lender. Thinking you will save time by refinancing with your servicer is a misconception.
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“SELFi started with a simple idea: to offer the absolute lowest interest rates. That's it.”
Your servicer may charge you HIGHER Fees
Your servicer wants to refinance your mortgage for two reasons: 1) to make money; and 2) to avoid you leaving their servicing portfolio for another lender.
Some servicers will offer lower interest rates to entice their existing customers to refinance with them, just as you might expect.
Other servicers, however, will offer higher interest rates to their existing customers compared with the rates offered to new customers. This is because a new customer is less loyal and will want a better deal to switch lenders, whereas, your servicer may assume that you are not as “price sensitive”. I know, it’s messed up.
Always Shop
Your current servicer does not want you to shop for your refinance. They will tell you things like:
- “We know your loan best and will offer you the best rates.”
- “Since we’re your current lender you don’t need to requalify.”
- “We want to take care of our most loyal customers like yourself with a special deal.”
Don’t fall for their tricks.
After shopping around and you find that your current servicer offers you the best deal… great! At least you know.
Studies have shown that getting four quotes on your mortgage refinance will save you $3,000 on the refinance transaction. And that does not even factor in the savings over the life of the loan!
If you calculate the compound savings of getting a lower interest rate, your decision not to shop may cost you more than $100,000 over the life of the loan. Heck, you can retire one or two years earlier just by shopping around today.
Shopping around has never been easier, you can even see customized quotes here without a login.
So next time your servicer offers to refinance your mortgage, make sure to shop before committing.
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Brian Lovellon December 2, 2020 at 2:46 am
I owe 360 000 on my 30 year loan 18 years left . 4.125 rate fixed.is it worth refinance 30 yeses.
Miaon January 30, 2021 at 12:18 am
Yes. You can get your interes rate as low as 2.00. And could refinance your loan for 15 years and pay same monthly or even less…
Arthuron January 31, 2021 at 5:02 pm
No, refinance is like giving your money to your lender or if you decided to refinance to lower your payments, the true is that your payments will lower but you will extend your years and at the end you will pay more money in interest. I suggest to put extra money in your principal and that will reduce the interest and more money will go to the principal and you will cut 3 or 4 years. I did that and I paid off my house in 22 years instead of 30 by putting 100 dollars extra every month.
Steveon February 3, 2021 at 5:47 pm
I am not a mortgage professional, just a a finance geek. So I worked the numbers you provided and am estimating that your original loan was for about 490k and your monthly payment is about 2,375. Over the life of your loan you would pay roughly 365,000 in interest. You have probably already paid about $213,000 in interest.
If you are able to refi your 360k balance at 2.375 on a 20 year term your monthly payment would drop down to about $1,885. If you paid that loan as scheduled you would save a total of about $59,000 in interest compared to your current note. If you made extra principal payments as often as you can, you can save even more.
If you refi your 360k balance at 2.375 percent on a 15 year loan your payment would be roughly $2379. If you paid as scheduled you would save about $83,000 in interest compared to your current note.
If you were to refi your 360k balance at 2.375 for 30 years your payment would be about $1,400. If you paid your loan as scheduled you would only save perhaps $7k over the life of your loan minus what you paid in loan fees. That doesn’t make sense.
Mikeon January 28, 2022 at 11:27 am
You have options. But first yes absolutely refinance!
Depends on your age and self discipline I’d say. Refi to 30 years to get the lowest payment possible. This way your weekly check you will have that much left over to go out and enjoy life while your young. Take that hawaiii trip a few times a year. Try that expensive restaurant more than once. Treat your family. Pay off car or upgrade to car you always wanted. And if you decide not this month then you can always send extra money straight to principle any given month (which would pay off your loan faster if you did this every month) but you don’t have to pay that extra like you would if you did the 15 year finance. Discipline would be to pay that extra to principle every month.
Now you can do the 15 year lower interest and higher monthly or the same monthly and pay it off in 15 years. But in 15 years will you enjoy that Hawaii trip as much? Will you look back and say I should of done this…? Heck will you be around in 15 years ? Will your house be standing in 15?Enjoy!
Nick Mandyon February 12, 2021 at 11:43 pm
I have a mortgage 260,000 for one year at 3.75% my current mortgage company is aggressively trying to get me to refinance this mortgage and give me one corner up sent off with no cost?? What do you think of this deal??
Dianaon February 18, 2021 at 12:14 am
Hello! Was hoping someone can shed some light – I have $180,000 remaining on a 30 year loan. 27 years left at an interest rate of 4% – would it be worth it to refinance before seeking out a HELOC for a home expansion project.
Milaon March 6, 2021 at 6:39 pm
Hello, My mortgage, will expire on May 1, and they asked me to refi, Is that a good idea
Sharon ChoiceSmithon May 3, 2021 at 4:25 pm
I OWE A BAL OF 141000. I started out at 147500. @ 4.875%. 30 years.I pay 1232. MO. I received an offer to refinance at 2.5 × 30 years at 1060 MO. Closing 9000 is rolled over in payments bringing my new total mortgage to 151000. is this worth it?
ERIC STREVERon March 9, 2021 at 2:37 pm
I owe 72,762.00 @3.75% on primary loan of my house. I have a secondary loan of 9,936.00@ 7% on same house. maturity 03/01/2032
New loan is 30 year, 124,000 @ 2.99% and included all my debt, truck, personal loans, credit cards, etc.. with interest rates from 6% to 30% New payment required $1,105.00 a month, but I will be paying $1,800.00 a month.
what is time period for payoff in years?
Is this a greAT DEAL?
Alecia Hillon July 27, 2021 at 9:54 pm
I was switched to a loan financing company after serious injury. The bank would not discuss hardship. Once discussed they transferred my loan within 2 weeks without notice. The service company notified me. The servicing company required I make up payments within 3 months. Which meant I had to return to work more strenuously than I really can handle. i managed to make up payments after being unemployed over a year.
Then Covid. The servicing company wants to push over a year’s worth of payments to the end of a refinanced 30 year loan AND will not reduce my interest rate within the range or market rate. They make it hard to refinance outside with another bank. They reject payments you send in order to say your in default. Myself, I have been unemployed so long refinancing with another bank would be difficult.
Why are loan servicing companies allowed to disregard current interest rates? I’ve worked for over 40 years, paid mortgage for almost 15 years without issue until my illness. While there are no social supports, it should be possible for me to benefit from the current market interest rate, rather than paying off my loan with the burden of a rate from over 10 years ago.
