If you already have a mortgage, you might be curious about refinancing, and more specifically if you have to use your original lender.
Or if it’s best to use them versus another option. Let’s talk about that to get a better grasp for how it all works.
And why it could make sense to look beyond your current bank/lender instead of using them again.
Sure, loyalty can be a great thing, but when it comes to mortgages, it might be more beneficial to shop around instead.
This is especially true if a lender reaches out to you before you even put in the time to do your own research.
You Can Only Refinance with Your Current Lender? False!
First, let’s get a big myth out the way. You may have heard, or worse, been told that you can only refinance with your current lender.
This is NOT true. So someone is fibbing or you may have been misinformed. Either way, know that you can refinance with any bank or lender willing to work with you.
The same is true for any mortgage broker out there, assuming you used one in the past. Or even if you didn’t.
For example, let’s say you got your current mortgage with Bank A and now you want to refinance.
You can go back to Bank A, or you can go to Bank B, or mortgage broker A, or mortgage broker B. Or even credit union C.
The options are pretty limitless here. And any combination is possible.
So if you originally used a bank, you can use a broker for the refinance. Or vice versa.
The same is true if you originally went to a credit union and now want to try a broker, or a bank. Or an online lender that uses AI.
As long as you qualify for a mortgage with said bank, broker, or credit union, there should be zero restrictions.
Note: You current lender may tell you that you can’t refinance for X amount of time. This usually has to do with their commission recapture if the loan is paid off too quickly.
It won’t affect you, but it is true that they could have their commission clawed back if you refinance within say six months or less.
If this is the case, you could wait as a courtesy, but there is no obligation to do so if you’re worried rates may go up.
Should I Refinance with the Same Mortgage Lender?
Now that we know it’s possible to refinance your mortgage with the same company or a different one, the next obvious question is should you?
Well, that depends. First and foremost, did you like the company or broker you used in the past?
Did they provide excellent customer service? Did they close your loan on time? Was the mortgage rate competitive? How about the closing costs?
If you were pleased with them in the past, you should certainly give them an opportunity to provide a refinance quote.
However, that doesn’t mean you need to use them again. Even if they were absolutely stellar, their pricing just might not be competitive.
This is especially pertinent if it’s a refinance, as savings are generally the impetus for the transaction.
While there might be a discount or fee waiver to use them a second time (think the Better Forever Program), interest rate and mortgage APR are what matter.
If your old lender can’t beat the other quotes you obtain, they might be out of luck, even if they were easy to work with and highly competent.
You shouldn’t feel the need to use them again, especially if it costs you more money each month, potentially for the next 30 years!
Of course, if they are the best option pricing-wise, or very close, picking them for the peace of mind and/or ability to actually fund the loan might be the tipping point.
After all, you’ll want to know you’re in good hands with someone capable to close, otherwise the promise of a lower rate might turn out to be meaningless.
[What about a mortgage rate modification?]
What Happens When You Refinance with a Different Lender?
When you refinance your mortgage, it is paid off with the proceeds of the new loan. It’s kind of like making one giant payment that extinguishes the old loan entirely.
For example, say you have an outstanding loan balance of $250,000 and you want to obtain a lower mortgage rate via a rate and term refinance.
You apply with a new lender because they’re offering a much better rate/fees. When the new loan funds, the proceeds pay off the existing $250,000 loan balance.
Then you’ve got a brand new loan with your new bank and begin making payments to them instead.
In the case of a cash out refinance, you’d wind up with a larger loan amount, with any amount borrowed beyond the old loan balance coming from your available home equity.
For example, your existing loan is $250,000 and you want $100,000 cash out. The new lender pays off the old lender’s $250,000 loan balance and gives you an additional $100,000.
You now have a $350,000 loan balance with the new lender, which will need to be paid monthly.
Of course, a lot of times your loan will get sold off shortly after it is originated anyway, so chances are it won’t even be with the same company you used to get the thing.
For example, I’ve had mortgages that I got with a mortgage broker that eventually got sold off to Bank A, even though I never used Bank A to get a mortgage.
But if and when I refinance, my new mortgage lender will pay off the loan that is owned/serviced by Bank A.
This also explains why mortgage companies want you to refinance so badly. They often don’t own the loan anymore; so if you use them again, they can still make money even when offering a lower rate.
Lenders Are Trying to Recapture Mortgages Now More Than Ever
One final thought to consider. With loan volume drying up considerably over the past few years, lenders have become increasingly desperate to retain their old customers.
As noted, loans are often sold off shortly after origination, so your original loan officer, broker, or mortgage company could make money if you refinance with them regardless of the new terms.
And now that there’s really good technology available, they can mine their customer database daily to find prospects using current mortgage rates, your existing rate and loan balance, and so on.
Mortgage brokers are even doing this, with top lender UWM rolling out a program called KEEP to earn repeat business.
This means you are more likely to be bombarded by your original lender going forward, potentially making it more difficult to look elsewhere.
Of course, these lenders might extend a mediocre offer if they’re the ones reaching out, as opposed to you actively putting in the time to shop.
So take the time to gather a few quotes to ensure you don’t miss out on a better deal. You might even be able to negotiate with your old lender and get the best of both worlds.
Long story short, with a refinance you’re simply getting your loan paid off in full via the proceeds of the new loan.
It doesn’t really matter who holds the old loan other than knowing who that company is so they receive the proceeds to pay off your old loan.
Read on: The refinance process step-by-step.
Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 19 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.