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.
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.
“When you bought your home, your mortgage was sold.”
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.
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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