Does It Matter Which Bank We Use To Refinance Our Home?
October 25, 2020 11:06 AM Subscribe
Interest rates for refinancing a home seem to be lower than our current rate -- but only significantly if I look at places like this or that credit union (I'm using Bankrate and other sites to get my info.) How can you decide if a bank/credit union is reputable? What are the issues here?
We got a referral for a reputable mortgage guy from a local realtor we know and trust.
posted by ThePinkSuperhero at 11:35 AM on October 25, 2020 [1 favorite]
posted by ThePinkSuperhero at 11:35 AM on October 25, 2020 [1 favorite]
Response by poster: I have a mortgage broker who is reputable and worked with us on two previous refi's. However, I don't know that she gets the lowest rate, considering what I'm seeing online for the New York Community Bank, and a couple of credit unions, not necessarily local.
posted by DMelanogaster at 11:45 AM on October 25, 2020
posted by DMelanogaster at 11:45 AM on October 25, 2020
My folks are looking at a refi right now, and pretty much deciding against it due to closing costs and/or points required to get those crazy low rates. The amount they would be saving in their monthly mortgage payment would take years to cover the out-of-pocket costs of the refi.
posted by Sweetie Darling at 12:03 PM on October 25, 2020 [1 favorite]
posted by Sweetie Darling at 12:03 PM on October 25, 2020 [1 favorite]
Any big national bank is probably selling your mortgage anyway. A small local one is more likely to keep the money local, if that matters to you.
posted by COD at 3:09 PM on October 25, 2020 [1 favorite]
posted by COD at 3:09 PM on October 25, 2020 [1 favorite]
I’ve gotten mortgages with three smaller local lenders and they all sold my loan to big national lenders (one has kept servicing the loan, and of course it’s the one with the worst online experience). I don’t think it matters except for customer service, and even that mostly only matters at the time of the application. If you trust them to not sell you, like, a totally weird nonconforming loan (or if you trust yourself enough to notice if they try) and you trust them to close on your schedule (or close enough), for the most part banks is banks.
posted by mskyle at 3:48 PM on October 25, 2020
posted by mskyle at 3:48 PM on October 25, 2020
Best answer: How can you decide if a bank/credit union is reputable?
I think most Mefi people overindex on getting a "good" bank for a mortgage/refinance. There is a reason to do so for a mortgage because your purchase contract will have a closing date that the bank will need to meet. There isn't really as much reason to do so with a refinance. The worst case for a refinance is that your refinance doesn't close, which is... exactly where you are right now. Essentially all banks sell their mortgages to Fannie Mae/Freddie Mac. Once the mortgage is in Fannie Mae/Freddie Mac's hands, you're basically done with the bank you get the refinance from.
I pick banks by:
What are the issues here?
I go a bit further than others in avoiding points - I don't refinance if there is a single closing cost (example - appraisal fee or recording fee) that isn't covered by the bank. Every loan agent has the ability to trade lender credits (to pay for closing costs) for interest rates. Mortgage rates are so low right now that paying any amount of money more than necessary to refinance probably will take a really long time for you to break even. For what it's worth, I refinanced in August for a net cost of roughly $-150 (ie, I was paid to refinance).
A refinance of your mortgage with the same term as your original mortgage will stretch your mortgage payoff date. For instance, if you are five years into a 30 year mortgage and refinance into a 30 year mortgage, your net mortgage term will be 35 years. This isn't necessarily a bad thing - quite a few people are in a situation where it's advantageous to them to pay a mortgage effectively indefinitely (again, mortgage rates are really low right now). However, if you want to avoid that, ensure you either:
posted by saeculorum at 4:13 PM on October 25, 2020 [13 favorites]
I think most Mefi people overindex on getting a "good" bank for a mortgage/refinance. There is a reason to do so for a mortgage because your purchase contract will have a closing date that the bank will need to meet. There isn't really as much reason to do so with a refinance. The worst case for a refinance is that your refinance doesn't close, which is... exactly where you are right now. Essentially all banks sell their mortgages to Fannie Mae/Freddie Mac. Once the mortgage is in Fannie Mae/Freddie Mac's hands, you're basically done with the bank you get the refinance from.
I pick banks by:
- going to bankrate.com
- putting in my desired refinance details
- contacting the lowest three or four banks that pop up with zero closing costs
- taking the lowest quote and sending it to the other two or three banks and have them match/beat it
- pick the lowest resultant quote after match.
What are the issues here?
I go a bit further than others in avoiding points - I don't refinance if there is a single closing cost (example - appraisal fee or recording fee) that isn't covered by the bank. Every loan agent has the ability to trade lender credits (to pay for closing costs) for interest rates. Mortgage rates are so low right now that paying any amount of money more than necessary to refinance probably will take a really long time for you to break even. For what it's worth, I refinanced in August for a net cost of roughly $-150 (ie, I was paid to refinance).
A refinance of your mortgage with the same term as your original mortgage will stretch your mortgage payoff date. For instance, if you are five years into a 30 year mortgage and refinance into a 30 year mortgage, your net mortgage term will be 35 years. This isn't necessarily a bad thing - quite a few people are in a situation where it's advantageous to them to pay a mortgage effectively indefinitely (again, mortgage rates are really low right now). However, if you want to avoid that, ensure you either:
- refinance into a mortgage set to the remaining term of your mortgage. Lenders typically offer 30, 20, 15, and 10 year products. If you ask, they can generally offer any number of years (<30), but there's rarely a financial advantage to do so.
- or, pay your mortgage at a rate more than the minimum payment so that you bring down the effective term of the mortgage
posted by saeculorum at 4:13 PM on October 25, 2020 [13 favorites]
Best answer: I found rates to vary more significantly than I had expected, when we refinanced over the summer. I used sites like Bankrate, and also called around to local credit unions etc. I probably got 40 quotes in total, and they varied by over a percent. There were a few credit unions that had significantly lower rates than the rest of the institutions. I ended up going with one that didn't have rates published in the online search engines (I had found about them by Googling and called for a rate). They offered me 2.375% for a ten-year mortgage with a total of $200 in fees, including appraisal etc. (I could have also had 2.125% for a ten-year mortgage with normal fees - maybe $2000 - but I calculated the break-even point to be something like 7 years and we're likely to sell before then). I went with them in part because of the excellent rate and in part because they said they'd hold and service the mortgage rather than selling it on.
Basically, what I'm recommending is that I'd find out the out-the-door rate for each of these institutions (ideally with zero fees and zero points), and get as many quotes as possible. I place a lot less weight on getting "good vibes" or whatever from a given institution. First, after the refi, there's not much interaction with the institution. Are you really willing to pay money every single month for the next few decades for a marginally more pleasant transaction? Also, my experience has been that credit unions are not only give a better refi experience (rather than a broker), but they tend to give better rates and also tend to hold/service the mortgage (mortgage brokers almost always sell on the mortgages, and you're often left with a servicer that is difficult to work with). I'd call around broadly for rate quotes, and then call back the top five candidates and ask if they hold/service the mortgages, and go with the one with the best rate that holds and services the mortgage.
posted by ClaireBear at 4:35 PM on October 25, 2020
Basically, what I'm recommending is that I'd find out the out-the-door rate for each of these institutions (ideally with zero fees and zero points), and get as many quotes as possible. I place a lot less weight on getting "good vibes" or whatever from a given institution. First, after the refi, there's not much interaction with the institution. Are you really willing to pay money every single month for the next few decades for a marginally more pleasant transaction? Also, my experience has been that credit unions are not only give a better refi experience (rather than a broker), but they tend to give better rates and also tend to hold/service the mortgage (mortgage brokers almost always sell on the mortgages, and you're often left with a servicer that is difficult to work with). I'd call around broadly for rate quotes, and then call back the top five candidates and ask if they hold/service the mortgages, and go with the one with the best rate that holds and services the mortgage.
posted by ClaireBear at 4:35 PM on October 25, 2020
Response by poster: This is so helpful! Of course I have follow-up questions but I don't think I'm allowed. Like, why do credit unions have lower rates? (I don't even really know what a credit union is). And, is there anything to know if we want to do cash out? (we do. In fact, this whole idea of mine started when it seemed as if I could take out a bunch of money and, with the lower interest rate, pay the same per month).
posted by DMelanogaster at 5:37 PM on October 25, 2020
posted by DMelanogaster at 5:37 PM on October 25, 2020
(I don't even really know what a credit union is)
Credit unions are financial organizations that have limited membership and are generally member-owned. It used to be common for credit unions to be quite limited in who they allow as members (like employees of a specific company), but now it's becoming more common for their membership criteria to be quite broad (like residents of a particular state). Because they are member-owned, they tend to operate in the benefit of their members rather than profit motive or shareholder interests as in the case of banks. However, because credit unions are smaller than banks, they tend to have fewer locations and offer fewer benefits.
Like, why do credit unions have lower rates?
Most banks are publicly owned with shareholders who want the bank to push rates as high as possible to maximize profit. Most credit unions are member-owned, with less (but not necessarily no) profit motive. This isn't universally true - my credit union in particular has particularly poor mortgage rates.
Mortgage brokers canonically are middlepeople who check a bunch of different banks/lenders/credit unions to find a low rate for you. They're then paid by those banks/lenders/credit unions to bring business to them. Mortgage brokers aren't very common any more because banks/lenders/credit unions generally don't pay commissions any more. What people generally refer to as mortgage brokers now are actually small banks that offer no services other than mortgages at low cost.
is there anything to know if we want to do cash out?
Taking cash out will probably increase your rate 0.5%-0.75%. Whether that's worth it to you is up to you. In addition, if your refi increases LTV (loan to value ratio - basically, how much you owe divided by how much your house is worth) up to 80%, you'll have to start paying mortgage insurance all over again.
posted by saeculorum at 8:08 PM on October 25, 2020 [2 favorites]
Credit unions are financial organizations that have limited membership and are generally member-owned. It used to be common for credit unions to be quite limited in who they allow as members (like employees of a specific company), but now it's becoming more common for their membership criteria to be quite broad (like residents of a particular state). Because they are member-owned, they tend to operate in the benefit of their members rather than profit motive or shareholder interests as in the case of banks. However, because credit unions are smaller than banks, they tend to have fewer locations and offer fewer benefits.
Like, why do credit unions have lower rates?
Most banks are publicly owned with shareholders who want the bank to push rates as high as possible to maximize profit. Most credit unions are member-owned, with less (but not necessarily no) profit motive. This isn't universally true - my credit union in particular has particularly poor mortgage rates.
Mortgage brokers canonically are middlepeople who check a bunch of different banks/lenders/credit unions to find a low rate for you. They're then paid by those banks/lenders/credit unions to bring business to them. Mortgage brokers aren't very common any more because banks/lenders/credit unions generally don't pay commissions any more. What people generally refer to as mortgage brokers now are actually small banks that offer no services other than mortgages at low cost.
is there anything to know if we want to do cash out?
Taking cash out will probably increase your rate 0.5%-0.75%. Whether that's worth it to you is up to you. In addition, if your refi increases LTV (loan to value ratio - basically, how much you owe divided by how much your house is worth) up to 80%, you'll have to start paying mortgage insurance all over again.
posted by saeculorum at 8:08 PM on October 25, 2020 [2 favorites]
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The benefits of working with a local credit union, to us at least, has been that they have a policy (just an internal policy, it's not part of the contract, so it could change) that they don't resell your mortgage.
posted by furnace.heart at 11:26 AM on October 25, 2020 [3 favorites]