Last Updated on 09/01/2017 by GS Staff
[otw_shortcode_dropcap label=”A: ” size=”large” border_color_class=”otw-no-border-color”][/otw_shortcode_dropcap] There are various reasons why you might want to switch your mortgage lender. Whatever the reason might be, you are able to change your mortgage lender in most cases. There are ways to switch your lender while you have an existing mortgage or while you are in the process of obtaining a mortgage. Let’s look at how it is done under each circumstance.
Switching With An Existing Mortgage
The way you change your mortgage lender is through a refinance transaction when you have an existing mortgage. When you obtain a refinance, your existing mortgage is paid off and is replaced by a new mortgage. This new mortgage can be obtained through your existing lender or a completely new lender of your choice.
If you are considering switching your mortgage lender through a refinance, you should ensure that you are receiving a worthwhile benefit for doing so. In lending terms, this is known as your net tangible benefit. This simply means that the benefit of obtaining a refinance outweighs the costs. Some net benefits that you may receive from completing a refinance transaction are:
- Savings from a lower interest rate and a reduced mortgage payment
- Reduction of your loan term (i.e. switch from a 30-year to a 15-year mortgage)
- Cash-out refinance to pay-off high interest debt (debt consolidation)
- Switching from an adjustable to a fixed mortgage when rates are projected to rise
If you are unhappy with your current lenders customer service or servicing procedures, your lender may eventually change without you having to do a thing. Loans are often sold to another company (servicer) after they close. It is possible that your mortgage will eventually be serviced by a different company over time. It is also possible to have several mortgage servicers over the life of your loan. However, there is no guarantee that your servicer will ever change. It is really just the luck of the draw. In fact in many cases, a switch to a new servicer only cause more problems for people with things such as customer service or bill payment issues.
Keep in mind that when your servicer changes, your original loan terms stay the same. The only difference is that a new company takes over things like collecting your payment or answering your loan inquiries. You will have to complete a refinance if you wish to change the actual terms of your mortgage.
Switching During the Mortgage Process
Sometimes it is necessary to switch your mortgage lender while you are going through the process of getting your mortgage. Maybe the lending is taking too long to close your loan or you find out your fees are too high. Whatever the case, you should figure out your cost to switch lenders. Some things you might want to consider before you switch to a new lender are:
- Will I need a new appraisal? If so, what is the cost?
- Am I getting a better interest rate with the new lender? If so, is this rate locked in so that I will receive this rate when I close?
- Can I negotiate the same or a better rate with my existing lender to potentially get me to stay with this lender?
- How much extra time, if any, must I wait to close my mortgage with the new lender? Your time my be limited, especially with a purchase transaction.
- Are the closing costs/fees lower with the new lender?
- Am I able to obtain the loan amount I want with the new lender?
- Did I sign a purchase agreement stating I would only use a specific lender?
Remember that you are in control of which lender you want to use. You do not have to stick with the lender that you were pre-approved with originally. Pick the lender that best suits your overall needs. There is nothing wrong with doing a little shopping around.
Be sure to look at the cost benefit of switching to a new lender. Depending on how far you are in the mortgage process, it may not be worth switching lenders if the cost savings is minimal and/or your closing is excessively delayed.
You may want to consider working with a loan officer who is trained in working with multiple lenders and their underwriters so that they can easily guide along the way. The mortgage process can be confusing so it can be beneficial in many cases to seek the help of a professional.