Earlier this year, online lender Better Mortgage introduced its “Better Forever” program, an incentive for existing and new customers that waives origination fees on future mortgage loans and refinances.
Up-front mortgage and refinance costs can add up, so waiving origination fees may be an enticing offer. But is it the best deal for you?
Let’s take a look at how incentives like this can sweeten the deal, or not, when you’re looking for a loan.
[Read: Best Mortgage Refinance Lenders.]
The ‘Better Forever’ Program
Better aims to simplify homeownership with a quick, streamlined application and closing process. The “Better Forever” program is positioned as a loyalty perk that rewards repeat customers by waiving the origination fee on future loans and refinances.
Better founder and CEO Vishal Garg said homeowners “deserve to feel confident in the interest rate tied to their mortgage for the life of their loan” and benefit from refinancing “without the fear of missing out on a better rate tomorrow.”
The incentive is available to all new customers and existing customers whose loans were funded after January 2019.
This may be an enticing offer for anyone looking to refinance their mortgage as interest rates decline, but experts say it should not be the driving factor in determining when and where you seek a refinance loan.
“While waived origination fees on a future refinance might sound appealing, they shouldn’t distract borrowers from the fundamentals: interest rate, loan terms, total closing costs and lender flexibility,” says Alex Caswell, founder of San Francisco-based wealth management firm Wealth Script Advisors
Should You Take Advantage of Waived Origination Fees?
Closing costs can be a significant barrier to refinancing a home loan. For many homeowners, waiving origination fees could mean hundreds or even thousands of dollars in savings.
But it may not be the best option for everyone, and Better isn’t the only lender that offers perks for borrowers in a competitive refinancing market. Other lenders may offer similar incentives and discounts, or more favorable rates and terms, so it’s worth shopping around.
“When refinancing or choosing a mortgage lender, it’s important to look beyond temporary promotions like waived origination fees,” says Adam Spigelman, senior vice president of portfolio retention at Planet Home Lending. “While those savings can help, borrowers should focus on the overall cost of the loan, interest rate and how well the mortgage fits their financial goals.”
Interest rates have the most significant impact on what you pay over the life of the loan, Caswell says. While avoiding origination fees could save you money, securing a lower rate may save you far more on your overall borrowing costs. Caswell says even a slight difference in rate, such as 0.25 percentage point, can translate to thousands of dollars over the course of a 15- or 30-year loan.
“That said, promotions like waived refinance fees can be beneficial if you’re confident you’ll refinance again with the same lender,” Caswell said. “But most borrowers refinance based on where they can get the best terms at the time, and there’s no guarantee that the same lender will be competitive in the future. Also, refinancing isn’t always a given — rates might go up, or life circumstances might change.”
Incentives like waived origination fees can be a tie breaker, Caswell says, but they shouldn’t be the deciding factor in choosing a lender. Instead, customers should focus on a low annual percentage rate (which includes fees), flexible underwriting, customer service and loan features that fit their goals.
[SEE: Current Mortgage Refinance Rates]
What to Do When You’re Looking to Refinance
If you’re considering refinancing, the first step is to shop around. With the mortgage market still operating in a high-rate environment, lenders are turning to incentives to attract and retain customers.
It’s worth checking with your current lender to see what’s available. However, don’t assume your current lender will give you the best deal just because you already have a mortgage with them.
Here are a few tips to help you navigate the process and get the best deal:
— Speak with your current lender first. Tell them you’re considering a refinance and ask what incentives they might offer. For example, some banks or credit unions offer “relationship discounts” for existing customers. Or they might reduce closing costs, waive certain fees or provide preferential rates to existing clients.
— Compare multiple offers. Obtain quotes from several lenders and compare interest rates, fees and terms. You can also use online comparison tools, speak with lenders directly or contact mortgage brokers. Experts recommend getting multiple quotes to see which company offers the most competitive package.
— Calculate your breakeven point. Determine how long it will take to recoup the up-front costs of refinancing to ensure it aligns with your long-term plans. If Better or another lender waives up-front fees, your breakeven point may be sooner, making it a more attractive deal.
— Look beyond rates and evaluate the entire package. Interest rates and fees are critical, but make sure you’re considering all costs when making a decision. Also, make sure you understand if any incentives are tied to other requirements, such as setting up auto pay or opening a bank account with the lender.
“Smart refinancing is about doing the math,” Spigelman says. “For example, a borrower paying 8% on a $300,000 loan could save $300 a month by refinancing into a 6.75% rate — even if it costs $6,000 to refinance. In that case, it would only take about 20 months to break even, and every month after that is pure savings.”
[READ: Compare Current Mortgage Rates]
Is ‘Better Forever’ a Good Option For You?
Maybe. But not necessarily.
Waiving fees is a strong incentive. However, eliminating origination fees does not guarantee the lowest overall cost or best long-term value, and many lenders may offer similar perks and discounts.
Better and other digital-first lenders may be a good fit for tech-savvy borrowers who value speed and simplicity. For those who value a physical location nearby or strong personal relationships with lenders, it may be best to stay local or stick with your current bank or credit union.
Bottom line
Fee waivers can offer significant savings on a refinance or new mortgage loan. However, it’s crucial to compare the total costs of the loan and assess the complete loan package. A slightly higher interest rate could negate the savings from waived fees, while higher fees could negate a lower interest rate.
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Better Mortgage Is Offering Refi Perks. Your Lender May Be Doing It, Too. originally appeared on usnews.com
