Dear Dr. Don,
We have a mortgage on my home through a bank. We would now like to buy a larger home. Should we just go with the same bank or shop for a lender somewhere else? Doing business online would seem to be more convenient. My biggest concern is getting a good rate.
— Ken Credit
Major originating lenders often retain servicing. If the originating lender on your current mortgage is still the servicer, and if you’re happy with their service, I’d suggest you stay with that company.
That also assumes you can get good mortgage rates and closing costs. Some homeowners tend to believe that by returning to the originating lender or servicer they’ll get lower closing costs and rates. This is not always the case.
Along with you, the other key parties in a mortgage deal are the loan originator, the loan servicer and the investor. Very few originating lenders hold loans in their portfolios. They are not the final investor in your mortgage. The loan typically becomes part of a pool of mortgages packaged for sale to government-sponsored enterprises Fannie Mae or Freddie Mac. Loan servicing, or the management of your payments and balances, is typically handed over to another financial institution.
Your goal should be to get the lowest possible total after-tax interest expense. That includes closing costs on the loan. One should look for a combination of a low interest rate and closing costs.
If you shop for loans in a fairly short period, say within two to three weeks, your credit score should not be hurt by making multiple inquiries. It would be clear that you’re comparison shopping for a mortgage.
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