We get a lot of people inquiring about a refinance and whether they have to go through their existing lender or not. A refinance is technically a pay off of your old loan and the start of a brand-new loan. You are essentially getting a loan to pay off your existing loan and reissuing with new terms and new interest rates. So, you don’t have to go with your existing lender and here’s why.
When you apply for a home loan a mortgage officer will typically search through hundreds of different loan programs and options to find the best program for you, your family, and your finances. This could be a conventional loan, an FHA loan, a VA loan for military personnel, or a USDA home loan. You apply for the home loan and the terms and conditions are set forth in the purchase and sale contract and financing contingency. Once you close on that home, the loan goes into play and each month you pay your lender your mortgage amount with any applicable taxes and insurance. Should you refinance, you can go back to the same mortgage officer, loan officer, or bank to see if they have a better option or you can simply choose any lender you want.
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Your existing lender doesn’t need to know that you are refinancing at this time. You can shop around with different mortgage officers who have access to hundreds of different loans or you can go through your local bank or credit union. Typically, banks and credit unions only offer their programs and loans while a mortgage officer can offer dozens of different options and find the best program and rate for your needs.
Only after loan approval and the process get started does your existing lender need to know that you will be paying off the loan in full. The new lender will discuss options with the old lender about how to pay off the mortgage, any prepayment penalties, and distribute funds at closing. You will now obtain a brand-new loan with the new loan officer for either better terms, better interest rates or a cash-out refinance for debt consolidation, home repairs or remodels, or any other reason you might be pulling equity out of your home.
Now, it’s important to note that shortly after you close on a brand-new home loan, whether it’s the first one or a refinance, your loan will likely be sold to another mortgage company. This is extremely common. Mortgages are bought and sold every day across the US so even though you might start out with one company, within a couple of months you may end up paying another company. However, this is where many homeowners can get scammed so if your loan is sold and you are unsure about the validity of the new mortgage company, simply call your lender or your escrow company to verify the legitimacy of this new company. This is the perfect time for criminals to swoop in and make you think you’re paying your new mortgage company, when in fact you are paying them.
All this being said, if you are currently unhappy with your mortgage and are considering a cash-out refinance or you just like to change your terms, perhaps to a lower interest rate, shorter mortgage term, or remove mortgage insurance, give us a call. We’d like to offer you a variety of different rates and options to meet your current and future financial needs.