Best Refinance Mortgage Rates Introduction
When you refinance your mortgage, you are taking out a new loan to pay off your existing mortgage. The goal of refinancing is typically to get a lower interest rate on your new loan, which can save you money on your monthly mortgage payments and overall interest costs. However, refinancing can also allow you to change the terms of your mortgage, such as the length of the loan or the type of mortgage product, and it can be a way to tap into the equity you have built up in your home.
To find the best refinance mortgage rates, you will want to shop around and compare offers from multiple lenders. Interest rates can vary significantly from one lender to another, so it is important to compare rates from a number of different sources to find the best deal. You should also consider other factors, such as closing costs and fees, as well as the reputation and customer service of the lender.
When shopping for refinance mortgage rates, it can be helpful to use a mortgage calculator to estimate your monthly payments and compare the costs of different loan options. You should also consider consulting with a financial advisor or mortgage broker to help you understand your options and choose the best refinancing option for your financial situation.
On Friday, December 23, 2022, the national average 30-year fixed refinance APR is 6.61%. The average 15-year fixed refinance APR is 6.05%, according to Bankrate's latest survey of the nation's largest refinance lenders.
Mortgage refinance industry insights
2020 and 2021 ushered in a refinance boom, when homeowners took advantage of rock-bottom rates. Those days are behind us now as current mortgage rates continue to rise, with refinances making up a small share of loans today. These have been mostly cash-out refinances, in which a homeowner replaces their existing loan with a new, bigger mortgage that includes the balance of the first plus a portion of their home’s equity as cash.
Mortgage refinance rates have increased and are expected to continue to rise. Because of this, the refi window has closed for most borrowers, although with substantial equity, some might have an opportunity to benefit from a cash-out refinance or a home equity loan. Overall, refinancing will be a less attractive option as rates climb.
How to refinance your mortgage in 5 steps
If you can get an adequately lower rate, refinancing can save you thousands of dollars a year, but it does require some work on your part. Here's a quick guide:
1. Check your credit score
A better credit score will help you secure a better rate and make your refinance even more cost-effective. If you're not happy with your credit score or the rates you're being quoted, work on boosting your credit first, then try to refinance again once you've improved it. Typically, mortgage lenders want to see a credit score of 620 or better for a refinance, but there are some refinance options if you have poor credit, including streamline programs. You can improve your credit score by reducing your credit utilization ratio (the proportion of credit you’re using compared to your credit limit) and paying down your highest-interest or highest-payment debt.
2. Calculate the cost vs. savings of refinancing
One of the most important factors in refinancing is figuring out your break-even timeline. A refi usually comes with upfront costs at the closing, just like an initial mortgage, and those can be thousands of dollars or more. If you're not planning to stay in your current home for more than a few years, the savings you get from a lower rate might not outweigh those costs before you move. Bankrate's refinance breakeven calculator can help you figure out this timeline.
3. Find the best refinance rates today
It's just as important to shop around when you refinance as it was when you applied for your first mortgage. Explore refinance offers from at least three mortgage lenders (your bank or current lender might be good places to start), and keep an eye on rates while you comparison-shop — this can help you decide when to lock in a rate. Check out Bankrate's lender reviews, as well, to help guide your decision.
Compare the best mortgage refinance lenders.
4. Get your paperwork in order
Once you've identified a lender, find out what paperwork you need in order to complete a refinance application. Your lender will want to review tax returns, pay stubs, W-2s and other proof of income, as well as documentation about any assets such as savings.
5. Prepare for closing on your mortgage refinance
Refinancing isn't quite as hard as shopping for a house, but it still takes some time. While your loan is processing, don't open new credit accounts or make other large purchases until the new mortgage closes. Doing so can derail your application.
Why compare mortgage refinance rates?
Shopping around for quotes from multiple lenders is key for every mortgage applicant. When you shop, consider not just the interest rate you’re being quoted, but also all the other terms of the loan. Be sure to compare APRs, which include many additional costs of the mortgage not shown in the interest rate. Some institutions may have lower closing costs and fees than others, or your current bank or credit union may extend you a special offer. Don’t be afraid to walk away from your current lender when you refinance. If you can find a better deal elsewhere, go for it. Look at quotes from online and traditional banks. Consider using a mortgage broker, who will be able to provide rates from wholesale lenders.
Pros and cons of refinancing
Refinancing can be a smart move, whether it helps you secure a lower rate or tap your home equity to fund a home renovation or other project through a cash-out deal.
Pros
- You can lock in a lower rate by refinancing, which should make your monthly payments lower and give you some money back in your budget.
- If your home’s value has risen, you might be able to stop paying private mortgage insurance (PMI), which will also lower your monthly expenses. PMI should end automatically once you get to at least 20 percent equity owned free and clear, but it’s usually a good time to consider a refinance once that happens, too.
- If you need money for renovations, a cash-out refi offers relatively cheap capital. It can make your monthly payments more expensive, but home improvements boost your equity value even more.
Cons
- Refinancing costs money. Closing costs can total 2 percent to 5 percent of the amount of the mortgage, which is why it’s so important to make sure you’ll recoup those costs before you move.
- If you refinance from a 30-year loan to another 30-year loan, you’ll extend your repayment period. A new loan restarts the repayment clock.
- Should you refinance your mortgage?