Compare Today’s Refinance Rates | U.S. News

U.S. News Expert Insights

“Mortgage rates retreated further this week as incoming data on inflation and the labor market continues to point to a cooling economy. In its December meeting, the Federal Reserve elected to hold the federal funds rate at 5.25% to 5.5%, where it’s been since July. It appears that the Fed’s rate-hike cycle has likely come to an end, so now investors have turned their attention to when rate cuts might come next year.

“Although mortgage rates seem to have peaked, prospective homebuyers should still temper their expectations. The rate on a 30-year fixed mortgage isn’t likely to return to record-low territory anytime soon, if ever again: Most forecasters believe that rates will stay above 6% throughout 2024. As long as the economy keeps humming along at a steady pace, rates will stay elevated. But considering that rates were nearly 8% just over a month ago, it’s evident that housing affordability is on the right track.”

– Erika Giovanetti, U.S. News Loans Expert

Refinancing your mortgage is “essentially trading in your old home loan for a new one,” says Chuck Meier, senior vice president and mortgage sales director at Sunrise Banks.

Your lender uses the new mortgage to pay off your old home loan. You’ll then start making payments on the new mortgage with updated loan terms that often include a different principal and interest rate. Homeowners usually refinance to save money, to change loan terms or to borrow money against their home equity.

Mortgage refinancing takes 30 to 45 days on average. You’ll review your refinance options, apply for the loan and provide documents, wait for underwriting and appraisal, and close on the new loan.

If you’re considering a refinance, you will need to determine whether it makes sense for your situation. That involves looking at your financial goals, considering how long you plan to stay in your home and checking current mortgage rates. Here are some situations when refinancing might be a good idea.

You qualify for a lower interest rate. You may get a good refinance rate if market rates are dropping or your credit score improved since you took out the original loan. Some mortgage experts say a rate-and-term refinance makes financial sense if you can lower your rate by about three-quarters of a percentage point. But even shaving half of a point off your rate may be a good move if it helps you lower your monthly payments and you plan to stay in the home for the long term.

However, you may wind up paying more interest over the life of the loan if you lengthen the term in the refinance. Use a mortgage calculator to determine if you’ll come out ahead.

Your home equity has increased substantially. Homeowners with a mortgage in early 2022 saw their equity increase by 32.2% compared with the previous year, according to a home equity report from CoreLogic, a data and analytics company. That works out to an average gain of $64,000 per borrower.

If you’re sitting on a lot of equity and want to borrow against it, you may decide to do a cash-out refinance. This involves taking out a new mortgage for more than you owe, paying off the old loan and keeping the difference in cash.

Lenders usually require you to have a certain amount of equity for a cash-out refinance – and “with rising home values, you may have enough,” says Thomas Bullins, a mortgage sales manager at AmeriSave Mortgage. The money you borrow may be used for anything, such as financing home improvements, paying off debts or funding large purchases, Bullins adds. 

You’re removing a co-borrower from the loan. If you took out the mortgage with a co-borrower, such as a spouse, relative or friend, both of you are equally responsible for making mortgage payments per your loan contract. When you want to remove a borrower, you may need to pay off the loan. Refinancing puts the mortgage in your name and pays off the old debt with the new loan.

You want the benefits of a conventional loan. Government-backed loans, including FHA loans and USDA loans, typically come with perks such as low down payments and flexible lending requirements. But they can have expensive downsides. For example, borrowers may need to pay mortgage insurance throughout the life of the loan.

If you qualify to refinance to a conventional loan, you will be able to remove mortgage insurance once your loan-to-value ratio reaches 80%. Refinancing to a conventional loan with more favorable terms – and eventually dropping mortgage insurance – may help you save money.

You want to combine a first and second mortgage. Some homeowners take out a second mortgage in the form of a home equity loan or line of credit, also called a HELOC. But if having multiple payments is confusing, your interest rates are high or one loan has an adjustable rate, you may consider combining the loans using a rate-and-term refinance. This can help you simplify your finances and potentially save money.

You want a fixed rate. Some home loans have an adjustable rate, where the interest rate is fixed for a certain period of time and then may change regularly. For instance, a 5/1 adjustable-rate mortgage has a fixed interest rate for five years and then may change once a year for the rest of the loan term.

If you plan on living in your home for just a few years and want the lowest rate initially, an adjustable-rate mortgage could be a good choice. Otherwise, “Switching to a fixed-rate loan with reliable and stable monthly payments can give homeowners the security of knowing that their payment will never change,” Bullins says.

Lenders charge fees to refinance just as they would for a purchase mortgage. Homeowners pay $5,000 on average to refinance, according to Freddie Mac, but your loan size and location will also influence the cost.

The best way to estimate your refinance costs is to get a quote from a reputable bank or credit union. Ask for an estimate of your new interest rate and monthly payment as well as a complete list of refinancing fees. Once you have these numbers, you will be able to calculate your break-even point, which is when your savings equal costs.

“Divide the total refinance closing costs by your estimated monthly savings,” Bullins says. “The result is the number of months you’d need to stay in your home to recoup your costs.”

Let’s say your refinancing fees total $5,000, and you will save $100 a month with the new loan. Divide $5,000 by $100, and you get 50. That means you will need 50 months – a little more than four years – to recoup the cost of refinancing.

Some lenders may advertise no-cost refinance loans or no-closing-cost loans. Your lender will cover the closing fees on your loan but will recoup its costs in some way. For instance, a lender may charge you a higher interest rate to cover the cost of making the loan or bake the closing costs into your loan amount. With either method, you won’t pay closing costs but will have a higher monthly payment than if you did.

You can find the lowest refinance rate on the market by following a few steps.

Compare mortgage refinance rates. Getting quotes from multiple lenders is the best way to find the lowest mortgage refinance rate. Rates can vary by lender, borrower and location, and even a small difference can add up over time.

For instance, a refinance rate of 5% can save you $52.58 a month compared with a rate of 5.5% on a loan balance of $200,000 with a 15-year term. Over the life of the loan, you save about $9,465.

Buy points to lower your rate. Discount points are fees you can choose to pay your lender in exchange for a lower interest rate. This is sometimes known as buying down the rate.

One point typically costs 1% of the loan amount, meaning one point on a $200,000 mortgage would cost $2,000. Each point reduces your rate by about a quarter of a percentage point, which can lower your monthly payments. You’ll need to calculate your break-even point to see if buying points makes sense for your situation.

Improve your credit. Having good credit, which generally means your credit score is 670 or higher, may help you get a lower refinance rate. You may be able to raise your credit score by taking a few simple steps.

Visit AnnualCreditReport.com to request your free credit reports from the three credit bureaus. Look for errors that can bring down your scores, and dispute any errors you find. Paying down your debts and consistently paying your bills on time may also help boost your credit scores.

Refinance rates are generally higher compared with mortgage purchase rates. Generally, rates are higher to account for a slightly greater risk for refinance mortgages.

“Additionally, Fannie Mae and Freddie Mac have some loan-level pricing adjustments that apply to refinances and not purchases,” says Jay Dacey, president of the Jay Dacey Mortgage Team Inc.

Those adjustments are basically fees that lenders pay to Fannie Mae and Freddie Mac, then typically pass on to the borrower as a higher interest rate. The fees may increase based on your credit score, equity and other factors.