Homeowners who want to save money on their mortgage interest or lower their monthly payments should look into refinancing. Finding the best refinance rates can help save thousands of dollars in interest and offers more wiggle room in your budget. Other reasons homeowners can benefit from a refinance include eliminating private mortgage insurance (PMI), paying off the mortgage quicker, tapping into home equity, and more.
Even with all these benefits, it may not make sense to refinance. For one, you must pay lender fees, much like you did when you took out your mortgage. That's why it's important to carefully consider whether there are enough financial incentives to do so. To help you in your decision-making process, take a look at the best mortgage refinance rates below, as well as questions to consider before signing on the dotted line.
Frequently Asked Questions
What Is a Mortgage Rate?
A mortgage rate is the amount of interest a lender charges for a mortgage. This rate can be fixed, meaning it remains the same throughout the loan term or variable, varying in accordance with a benchmark interest rate.
One of the most important considerations for homeowners when refinancing is the mortgage rate. This percentage affects the monthly payments and what they’ll pay overall throughout the term of the loan.
What Is Mortgage Refinancing?
Mortgage refinancing is a type of loan where homeowners take out a new mortgage in order to pay off their existing one. Homeowners can replace their current mortgage rate and monthly payments with one that has a lower interest rate, saving them money.
Lenders charge upfront fees for refinancing, similar to getting a mortgage loan. These fees may be worth it, especially if lower interest rates equate to significant savings over the long term.
Other reasons homeowners refinance their mortgage include:
Lowering monthly mortgage payments: Lowering your mortgage rate can result in a lower monthly payment. Homeowners can also do so by refinancing to a longer loan term (this will not lower the amount of interest you pay overall).
Switching to a different mortgage type: Many homeowners who have adjustable-rate mortgages (ARMs) switch to fixed-rate mortgages to save on interest. Other reasons may be that homeowners want to get rid of mandatory insurance premiums from their FHA loan.
Changing the term of the mortgage: Homeowners can reduce their loan term to pay off their mortgage faster.
The above reasons to refinance are typically through what’s called a rate-and-term refinance, the most common type of mortgage refinancing. Lenders will lend you your existing mortgage balance at a different rate and term.
A type of refinancing called a cash-out refinance is another popular method for homeowners to refinance their loans. With a cash-out refinance, homeowners take out a loan for an amount higher than their current mortgage balance and keep the difference in cash. Homeowners opt for a cash-out refinance because it may offer a more competitive rate than a home equity loan or personal loan, and the cash can be used for most purposes, like making major home repairs.
When you’re considering refinancing, it’s important to pay careful attention to the rate being offered and the fees you’ll need to pay. That way, you can decide if it’s worth switching over to a new mortgage.
How Are Mortgage Refinancing Rates Set?
Mortgage refinancing rates typically move in conjunction with mortgage purchase rates. That means if mortgage purchase rates go down, you can assume refinance rates will decrease as well, and vice versa. In most cases, refinance rates are a bit higher than purchase rates, for instance, cash-out refinance rates are higher because it’s considered riskier.
Lenders also assess your refinance rate based on factors such as your credit score and the amount of assets and liabilities you have. Plus, the amount of equity you have can also affect rates. The more home equity you have, the lower your refinance rate is.
Does the Federal Reserve Decide Mortgage Rates?
Although the Federal Reserve doesn’t directly decide mortgage rates, it influences them when it changes short-term interest rates. Financial institutions like banks use these rates to borrow from each other, and these costs are usually passed onto borrowers. What this means is that if the Federal Reserve raises or lowers the short-term rates to guide the economy, lenders may do the same to their mortgage rates.
