Best Refinance Lenders: Which One Is Best For Me?
When you’ve already qualified for a mortgage and have had it for several years, sometimes, mortgage rates may drop. To take advantage of these lower rates, you can consider refinancing your mortgage.
Refinancing a mortgage entails paying off your current one by replacing it with a new loan. You can use it to take advantage of dropping rates, shorten your term, or even tap into your home equity.
Because your original lender may not give you the best rates, finding the right refinance lender can be a difficult process. To help you refinance your mortgage, we created this guide to round up the best refinance lenders! Not only will we discuss the best mortgage refinance lenders in the country, but we’ll also show you the most current rates.
How Lenders Determine Refinance Rates
Lenders assess your mortgage refinance rates based on three main factors, which we’ll break down below.
Market Conditions
Some factors that influence refinance rates are beyond your control. Generally, mortgage refinance rates will rise when the economy is good – signified by fast growth and low unemployment. Conversely, when the economy slows down and unemployment rises, rates will fall.
Inflation also plays a part in how the national mortgage rates move. When inflation rises, the rates also rise because the dollar becomes weaker. The reverse also happens – rates will fall if the dollar becomes stronger due to low inflation.
Lender Considerations
Different lenders offer different rates due to their individual considerations, like their appetite for risk and overhead costs. Some lenders may charge higher rates for loans on investment properties because of more risk, for example. Some banks also impose higher rates on adjustable-rate mortgage refinances because they bear more risk.
The lender’s capacity may also influence the rates you receive. A lender may raise their rates when their workload is high to keep them from being overwhelmed. Conversely, they may slightly lower their rates to attract more business.
Your Risk Profile
In addition to the economy and individual lender considerations, lenders will also assess your risk. If you’re unlikely to pay on time, lenders will charge you higher rates. But if your record of credit repayment looks good, they may reward you with more affordable rates.
Generally, this risk is assessed using your credit score, which is a measure of how reliable you are at paying your debts. Lenders also use your loan-to-value ratio to determine your rates and decide whether to require private mortgage insurance on your loan.
Types Of Mortgage Refinances
In the refinance market, there are two major refinance types. We’ll break them down in this section.
Rate And Term Refinance
Rate and term refinancing is the most common method to refinance your mortgage. You take a new mortgage to pay off the old one, typically to change the terms on your loan.
You can use this type of refinance to take advantage of the lower rate on mortgages and save money or pay off your loan faster by refinancing into a shorter-term mortgage. You can also use this type of refinance to change your mortgage type.
Let’s say you have a 5/1 mortgage, and you’re at the end of your 5-year fixed-rate loan period. If you don’t want to take the risk of having your rates adjust every year, you can refinance and change the loan into a fixed-rate mortgage.
Because of the lower rate on the first five years of your mortgage, you could end up saving more over the life of the mortgage compared to opting for a fixed mortgage from the start.
Cash-Out Refinance
As you pay off your mortgage, you’ll start building equity on your home. This home equity represents the value of your home that you truly own, free of debt. If you want to leverage this home equity to have money on hand, a cash-out refinance is an option that you can take advantage of.
By taking out a cash-out refinance, you’re replacing your old mortgage with another mortgage featuring a larger loan amount than what you currently owe. The difference will be paid to you in cash and can be used on anything you may need – this includes financing home improvements, paying other debts, and covering emergency expenses.
Caveats Of Mortgage Refinancing
While refinancing your mortgage has its benefits, you should also keep in mind several things that may cause you to lose money.
Your Loan Might Be Extended
Because you typically refinance their mortgage by replacing it with a new mortgage, you may end up extending your loan period.
For example, let’s say you have a 30-year mortgage that you’ve had for 10 years. If you refinance into another 30-year loan, you’ll be extending your loan period to a total of 40 years. While you may save money in the short term, you’ll likely be paying more in interest expenses because the life of the loan is longer.
You May Need To Pay Closing Costs Again
If you’re seeking to refinance, you should remember that you have to spend money if you want to save money.
Applying for a refinance means that you need to qualify for another mortgage – this means that you’ll be subject to all the closing costs that you already paid on your first one. Lenders may also require you to get your home appraised again because your property’s value may have risen or fallen since you first got your initial loan.
But even if a lender advertises a “no-cost” refinance, you should be careful. Most of the time, the closing costs are folded into the mortgage, increasing your rates. While it may seem attractive at first, the cost can add up over time.
Your Monthly Payment May Increase Significantly
Refinancing into a shorter-term mortgage can be the best option if you’re looking to attain better rates and pay off your loan faster. However, you should also remember that a shorter term means that you’ll have a larger monthly payment.
You should do some research and figure out how much you can comfortably pay per month before deciding to refinance into a shorter-term loan.
Current Mortgage Refinance Rates
To help you determine whether you’ll save money by refinancing, we’ve provided a table of the most current mortgage refinance rates below. This table is compiled from a comprehensive market survey of America’s top mortgage lenders and will be updated daily. Note that these rates may change without prior notice. Different lenders may also offer different rates depending on your qualifications.
(insert daily-updated refinance rate table here)
How We Find The Best Mortgage Refinance Lenders
Choosing the best mortgage refinance company from the many options available can be difficult. To assist you, we’ve picked some of the best lenders in the country and provide a review of each so you can make an informed decision.
In our review, we’ll discuss these major points offered by each lender:
- The lender’s strengths and weaknesses
- Loan types offered
- Minimum FICO credit score requirement
- Minimum down payment
When reading our list, you should also keep in mind how the lenders we’ve listed here will fit your needs. Consider the mortgage you currently have, your financial situation, as well as what you aim to accomplish by refinancing.
Top Picks For The Best Mortgage Refinance Companies
In this section, we’ll review several of America’s best mortgage refinance companies to help you choose which one fits your needs best.
Rocket Mortgage By Quicken Loans - Convenient Fully-Online Application
A subsidiary of Quicken Loans, Rocket Mortgage (NMLS#3030) is famous for its fully-online mortgage application and processing.
One of the pioneers of online mortgage services, Rocket Mortgage allows you to apply and close your mortgage application from the comfort of your own home. While some documents still need to be signed on paper, you have the freedom to choose the signing time and location.
Because it’s an entity under Quicken Loans, Rocket Mortgage provides the same types of mortgage refinances that its parent company does. Its lineup features both conventional and government-backed loans.
If you apply for home loans with Rocket, you can customize your term – freeing yourself from the restriction of 15, 20, or 30-year fixed loans. The lender offers loans from 8 to 30 years.
However, Rocket Mortgage may not be right for you if you’re looking to have an old-fashioned face-to-face conversation with your loan officer. Because Rocket has no physical branches, you’ll only be able to talk to the mortgage officers and customer service agents by phone.
This lender also has limited loan options to leverage your home equity because they only offer cash-out refinancing. If you’re looking for home equity loans or lines of credit, you may need to find another lender.
Minimum down payment: 3%
Minimum credit score requirement: 580 for FHA loan, 620 for conventional loan
Better.com - Guarantee For The Lowest Rates
Better.com (NMLS#330511) was founded in 2014 as a digital mortgage refinancing company with no brick-and-mortar locations. This lender offers both conventional and jumbo loans as well as refinances, available in fixed-rate and adjustable-rate terms.
Better.com boasts 24/7 customer service through AI-powered support and on-demand human customer satisfaction officers. It also assigns you a dedicated loan officer who you can contact throughout your application process once your pre-approval is done.
To make loans more affordable to their customers, Better.com waives origination fees and provides a low rate guarantee. The lender guarantees that they can beat any competitor’s offer by $100 – if they can’t, they’ll pay you $100, even if you don’t sign with them.
The loan shopping process is also made much quicker by Better.com because it can offer interest rate quotes and complete the preapproval process in minutes. You can then show the property seller this pre-approval letter to make your bid for the property more competitive.
However, you may not be eligible for a mortgage with Better.com if you live in certain states like Minnesota, Hawaii, and Nevada. Due to the pandemic, Better.com also cannot currently offer Federal Housing Administration (FHA) loans. You can’t get a VA loan with Better.com either. Additionally, it offers limited options to leverage your home equity since it does not offer home equity loans and HELOCs.
Minimum down payment: 3-3.5%
Minimum credit score requirement: 580-620
LoanDepot - Best For Repeat Customers
LoanDepot (NMLS#174457) is named one of the best mortgage refinancing companies due to its high loan volume. In addition to refinances, LoanDepot also provides other mortgage products such as jumbo loans as well as FHA and VA loans.
Through the Mello Smartloan platform, customers can expect to close their loans faster. The platform expedites time-consuming processes like appraisal, allowing you to complete your loan application up to 17 days faster.
To put customer satisfaction at the forefront, LoanDepot officers are subject to a ‘no steering’ policy that requires them to offer their borrowers the loan that fits their situation most.
Repeat customers can save money on lender fees for any refinances after the first. LoanDepot offers a permanent waiver of fees after a borrower applies for a refinance the first time.
However, you may find it difficult to find LoanDepot rates. The company doesn’t list its interest rate information openly on the website and requires you to contact them directly to get a loan estimate. This company also does not offer any other way to leverage your home equity aside from cash-out refinances.
Minimum down payment: 5%
Minimum credit score requirement: 580 for FHA loan, 620 for conventional loan
Bank Of America - A Wealth Of Loan Options
Founded in 1956, Bank of America (NMLS#399802) offers many mortgage solutions, making it a favorite among borrowers. The popularity of this bank is only reinforced by its #1 placement in the J.D. Power customer satisfaction rankings in 2019, as well as its second-place finish in the 2020 version of the report. The bank is also certified A+ by the Better Business Bureau.
As one of the largest banks in the world, Bank of America provides many purchase and refinance loan types, ranging from fixed-rate mortgages to adjustable-rate mortgages with variable terms. It also provides conventional jumbo loan options and government-backed mortgages like FHA and VA loans. If you’re a Preferred Rewards customer, you may be eligible for up to $600 off on mortgage origination fees.
The bank makes the application process easier by providing online application methods through its app as well as accepting non-traditional credit data. This means that, for some loans offered by Bank of America, you can qualify using your rent or utility bills.
However, this lender doesn’t provide detailed information on their origination fees. While they say that fees average around $1,200, Bank of America does not publicly state a specific value – making loan-shopping slightly more challenging.
Minimum down payment: 3%
Minimum credit score requirement: 580 for FHA loan, 620 for conventional loan
Guaranteed Rate - Get A Free Refinance Estimate
Chicago-based Guaranteed Rate (NMLS#2611) offers a wide variety of conventional and government-backed loan types for purchase and refinance mortgages. With its strong digital mortgage tools, customers can complete the entire mortgage refinance application process within ten minutes. Guaranteed Rate also provides you the option to get a customized refinance interest rate without a credit inquiry, meaning that you can talk to a loan officer without impacting your credit score.
However, Guaranteed Rate offers limited types of mortgage refinances. If you’re looking for options to leverage your home equity like a home equity loan, HELOC, or a cash-out refinance, you might need to look for another lender.
Guaranteed Rate is certified B+ by the Better Business Bureau because of a government action that happened in 2020. This action stems from the lender certifying ineligible FHA and VA home loans, although Guaranteed Rate has since corrected this issue.
Minimum down payment: 3%
Minimum credit score requirement: 580 for FHA loans, 620 for conventional loans
Chase - Fast Closing Guarantee
One of the largest mortgage lenders in the United States with offices in many states, Chase (NMLS#399798) provides both adjustable-rate and fixed-rate mortgage and refinance home loans alongside jumbo mortgage products with loan amount limits up to $3 million. In addition to conventional, you can also get an FHA loan or a VA loan with Chase.
For convenience, Chase offers the option of applying for your refinance online. If you’re already a Chase customer, your form will be partly pre-filled with the data they have on file. Once you complete the online form, you’ll be contacted by a home loan officer to finalize the refinance application.
To ensure that your application is finished as soon as possible, Chase offers a guarantee that your home purchase will be closed on time or they’ll pay you $2,500. If you don’t want to apply online, Chase also offers the option for you to apply at a nearby branch.
However, if you don’t want to talk to a home loan adviser or simply can’t find the time for it, you’re out of luck. Unfortunately, Chase doesn’t offer a fully-online application process.
Minimum down payment: 3%
Minimum credit score requirement: 620
How To Get The Best Mortgage Refinance Rates
Most people who seek to refinance are doing it to save money. But to do that, you’ll need to get the best mortgage interest rates from lenders. In this section, we’ll share five tips to lower your interest rate.
Exceed Minimum Credit Score & Debt-To-Income Ratio Requirements
Your FICO credit score is one of the most important determinants of your mortgage rate – a better credit score typically equates to lower interest rates. This is one of the most important factors because your history of payment performance is a predictor of future payment performance.
Generally, you’ll need a higher credit score for conventional loans compared to government-guaranteed mortgages. Better credit scores also increase the chances of receiving the best rates from lenders. To make sure your credit score looks its best, you have to pay your bills on time and settle outstanding debt.
Another important factor that lenders look into when determining your rate is your debt-to-income ratio (DTI). This ratio is the value of your monthly debt payments divided by your gross income.
For example, if you have a total of $1,000 in expenses and $3,000 monthly income, you’ll have a 33% DTI. Generally, lenders set their maximum DTI at 43%.
Pay More Down Payment
You can lower your rate by paying a larger down payment. This makes your refinance more affordable because it lowers your loan amount, there’s less of a debt to pay when you start monthly payments. In turn, you’ll get a better rate.
By paying more than the required 20% down payment, you can also avoid paying for private mortgage insurance, which goes a long way in making your monthly payments more affordable.
Check Your Credit Report
Sometimes, your credit score may fall because of things beyond your control. To prevent mistakes from harming your credit score, you should ask for credit reports from the three major credit bureaus (Equifax, Experian, TransUnion) regularly.
If you spot any inaccuracies or mistakes, you should open a dispute and attempt to correct the issues as soon as possible – and definitely before a lender asks for your credit score.
Use Credit Cards Responsibly
Responsible credit card use can help you improve your credit score. This doesn’t mean you’re not allowed to use your credit card – but when you do, strive to pay the entire bill every month. By keeping your balance down, you’ll build a history of reliable debt payments and keep your credit score looking its best.
Compare Between Multiple Lenders
Comparing offers from several lenders is the key to getting the best interest rates. If possible, consult with the lender’s mortgage officers to get a more accurate estimate of your interest rates as well as closing costs.
If you need assistance, consider enlisting the help of a mortgage broker. These financial professionals do the legwork of researching and contacting lenders to help you find refinance offers that best fit your needs.
Closing Thoughts
Refinancing can be one of your best options to save up on your mortgage. By applying for a rate and term refinance, you can take advantage of the lower interest rate available on the market or shorten your loan term to pay it off quicker. You can also leverage your home equity by taking a cash-out refinance.
If you need a more in-depth refinance consultation Wesley LLC is here to help! Our team of financial professionals can advise you on which mortgage lender best fits your refinance needs. Contact us today for more information!