Should you switch lenders during the mortgage process to get a lower mortgage rate?
It is certainly possible to switch lenders late in the mortgage process to lower your mortgage rate but there are several important considerations for you to review.
First, make sure that you are comparing similar proposals. For example, if one lender is offering a lower mortgage rate make sure its closing costs are similar to the other lender. If the lender with the lower rate is charging much higher closing costs, then that may explain why its rate is lower and those loan terms may actually be less attractive when you factor in the closing costs. Specifically, make sure the lender with the lower rate is not charging discount points, which is an optional cost that borrowers can elect to pay to lower their mortgage rate. In short, you want to make sure that you are comparing proposals on an apples-to-apples basis. The best way to do this is to compare the loan estimates provided by both lenders. This document enables you to compare mortgage rates and detailed closing costs for both lenders to determine the best proposal.
Second, you need to make sure the new lender can process and close your loan according to your desired time frame, if you do decide to switch. In most cases, the home purchase process has a set timetable as dictated by your escrow or settlement agent. For example, you may have a 30 or 60 day escrow period in which your mortgage and home purchase are required to close. Make sure that your new lender can meet this schedule or you may be forced to extend your escrow which can be problematic. I recommend that you have the new lender put in writing the timeline required to close your loan. You do not want to lose the home you plan to buy because your new lender could not complete their underwriting and other internal processes fast enough.
Another point to keep in mind is that although your appraisal report may be transferable, you should make sure that the appraiser is approved by your new lender. Although you pay for the appraisal report, the appraiser is actually hired by the lender so you need to confirm that your appraiser is on the lender's approved list. Additionally, you may need to pay an extra fee ($100 - $200) for the appraiser to re-submit your appraisal report to your new lender.
So if you are comfortable with the items outlined above, then it probably makes sense to switch lenders at this point in the process, especially if you can lower your mortgage rate by at least .250%.
Another option for you to consider is to see if your existing lender is willing to lower its interest rate to match the other lender. That way you avoid the additional expense and potential complications incurred by changing lenders but you benefit from paying a lower mortgage rate. If you current lender is unwilling to match the lower rate, then it likely makes sound financial sense to make the switch.
Please note that you can cancel your mortgage and switch lenders any time prior to singing your loan documents. If you decide to switch lenders, we always recommend that you contact multiple lenders to understand how they would handle your unique situation. You can compare lenders in your area by clicking MORTGAGE RATES When you contact lenders be sure to ask about their approval process and how long it will take to process and closing your loan.
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Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. Click here for more information on rates and product details.
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