How to find the best mortgage refinance rates
To get the best refinance rates, request quotes from several lenders. You should compare each company’s annual percentage yield (APR), not just interest rates. The APR is the interest rate plus the costs of things like discount points and fees. This number is higher than the interest rate and is a more accurate representation of what you’ll actually pay on your mortgage annually.
15-year refinance rates
When you refinance into a 15-year mortgage, you’ll pay off your new mortgage over 15 years. A 15-year refinance rate is lower than a 30-year refinance rate, but your monthly payments will be higher because you’re paying off the same mortgage principal in half the time.
30-year refinance rates
A 30-year refinanced mortgage has a higher rate than a 15-year refinanced mortgage, but your monthly payments will be lower. Refinancing into a 30-year term is a good way to lower your monthly payments, but it will take you longer to pay off your mortgage.
Mortgage rate trends
Average refinance rates are lower now than they have been since the beginning of 2018. Mortgage and refinance rates tend to be low when the economy is struggling, so low rates are a response to the long-term effects of the COVID-19 pandemic.
Average cost of a mortgage refinance
As with your initial mortgage, you’ll pay closing costs when you refinance. According to the Federal Reserve, refinance closing costs are usually 3% to 6% of your remaining mortgage principal. This comes to $3,000 to $6,000 for every $100,000 you borrow.
A report by financial tech company ClosingCorp states that the average refinance closing costs in 2019 were $5,779. This is only $30 more than the average closing costs on an original mortgage in 2019.
Your closing costs partly depend on where you live and the value of your home. You could pay less in closing costs in Indiana, where home values and property taxes are fairly low, than in Connecticut, where values and taxes are relatively high.
Closing costs also depend on your lender. For example, one lender may charge a smaller fee for your title search than another. Some lenders charge lender fees, also known as “junk fees.” These are fees that go directly to the lender, such as application and underwriting fees. Not all companies charge junk fees, though, so your closing costs will go down if you use a lender that skips these fees.
When you consider the cost to refinance your mortgage, consider whether the financial tradeoff will be worth it. You may cut your monthly payments by hundreds of dollars, or lock in a significantly lower rate that will save you thousands in the long run. In these cases, you may decide you’re comfortable paying closing costs.
Laura Grace Tarpley is an editor at Insider, responsible for banking and mortgage coverage on Personal Finance Insider. She covers mortgage rates, refinance rates, lenders, bank accounts, and borrowing and savings tips. She is also a Certified Educator in Personal Finance (CEPF). Before joining the Insider team, she was a freelance finance writer for companies like SoFi and The Penny Hoarder, as well as an editor at FluentU. You can reach Laura Grace at firstname.lastname@example.org.
Frequently asked questions
Is it worth it to refinance?
The answer to this question depends on each person and situation. In general, refinancing is probably worth it if refinancing into a lower rate will save you more money than you’ll spend on closing costs. It also may be worth it if your home has increased in value, or if your finances have improved so you can get a low rate.
How does a refinance work?
When you refinance a mortgage, you replace your original mortgage with a new one, which has a different interest rate and term length. As a result, your monthly payment amount will also change.
You’ll probably choose your top three or four favorite mortgage lenders , then compare rates and fees to find the best deal. An appraiser will come to your home to determine the house’s value. Then you’ll close on the new mortgage, which will be a similar process as the first time around.
Are mortgage rates different for refinancing?
Mortgage refinance rates are typically a little higher than purchase rates.
How much equity do you need in your home to refinance?
It depends on the lender, but most companies want you to have at least 20% equity to refinance a conventional mortgage or to get a cash-out refinance. You should be able to refinance with less if you have an FHA, VA, or USDA mortgage.
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