If you’re looking to refinance your mortgage, you’ve probably checked an online rate table comparing rates from different lenders. But more often than not, the rates at the top of the tables may not be an accurate representation of what you’ll actually get – or how competitive those lenders’ pricing actually is.
We sent two members of our team “undercover” as secret shoppers on major online rate tables to see if the lenders at the top of the table actually honored the rates they advertised. Some did honor the rate – but only after putting our team members through a long and arduous process. Others truly “bait and switched” us, luring us in with a low posted rate that they were unable to honor in writing.
Don’t take the bait. Here’s a guide to being a better rate shopper.
A quick primer on rates, credits, and “no closing cost” loans
Most refinance borrowers want a “no closing cost loan,” which means they don’t have to pay anything additional out of pocket when they refinance. These loans involve getting “lender credits,” which offset the closing costs associated with the refinance. In exchange, these loans come with a slightly higher rate.
Let’s look at an example. I’ll use imaginary numbers to keep it simple.
Rate tables don’t typically show “no closing cost’ loans
Even though most borrowers choose a loan with lender credits to offset closing costs, most rate tables display rates without lender credits.
Below, I’m showing the same table, highlighting the “advertised rate” that you would typically see displayed on a rate table.
Rate tables can make lenders seem more competitive than they actually are
This is where the real “bait and switch” practices start to come in. Lenders will often decide to take a very small profit margin on the low, advertised rate that shows up on rate tables. Then, they increase their profit margin significantly on the other rates they offer, knowing that the majority of borrowers will not end up picking their lowest advertised rate. They are giving the illusion of being competitive, when really only one of their rates is competitive – and it’s not the rate most borrowers choose.
Compare apples to apples: get a Loan Estimate ASAP
An official Loan Estimate (LE) is a standard document detailing all the costs associated with your mortgage. It’s enforceable, and the Consumer Finance Protection Bureau has made it a requirement for all lenders to give you one before you provide income documentation or lock your rate.
Get a Loan Estimate from a lender as soon as you can. If you provide your name, stated income, address, estimated property value, loan amount, SSN, and consent to a soft credit pull (which won’t affect your score) the lender must give you an LE (and it must look like this).
Walk away if you’re asked to submit docs before locking
For a refinance, a quality lender should be able to commit to a rate lock before seeing income documentation. Watch out for lenders who require an “initial review” or “underwriting approval” of your documents before a lock. They are trying to get you committed before knowing your terms.
Insist on speed and great service
We found several lenders waited for hours before putting their verbal quote in writing. After the delay, they would increase the quote by thousands of dollars and give an an excuse. We’ve seen anything from “the ten year treasury moved” to “the rate table had an error and didn’t update.” Markets are volatile. Prices do change within a day. But it is the responsibility of the lender to provide quick service so that the borrower is exposed to as little volatility as possible. Don’t accept their excuses if they delay.
A few real reasons you may get a higher rate
There are a few factors that can lead to a higher rate. If any of these apply to your situation, keep them in mind when you go shopping. Again, LEs are important because you can compare rates and costs based on your actual situation.
Actual circumstances in which you may get a higher rate:
- A “cash out” refinance
- A debt consolidation refinance (which is a type of cash out refinance)
- An investment property refinance
- A condo refinance (in some cases)
- Having a second mortgage lien on the property (such as a HELOC)
It’s time for a Better refinance experience.
It’s ugly out there. That’s why we built the technology to give you a quote, show you multiple products and rates, deliver an LE, and lock you online quickly, 24/7. You see everything our loan consultants see. No surprises. No bait.
And, with our Better Price Guarantee1, you can be sure you’re getting the best rate possible. If you think another lender has a more competitive price, send us their loan estimate within 3 business days from the date on the loan estimate. If we can't beat it by at least $1000, we'll give you $1000 in cash.
Terms and conditions apply. See better.com/the-better-price-guarantee. ↩