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How to refinance your home

how to refinance your home

Mortgage Rate Trends

Current Refinance Rates

from the LendingTree Network

For most people, the decision to refinance their mortgage depends on available refinance rates. Refinancing to a lower mortgage rate can allow homeowners to pay less interest over the life of the loan. However, refinancing costs money, and the savings generated by a refinance should be enough to offset that cost, and then some.

Refinance Breakeven

If you’re refinancing to pay less interest, you’ll want to pay attention to the refinance breakeven point. That point is reached when the interest savings equals the cost of refinancing. After reaching that point, your refinance has been paid for and the savings go straight into your pocket.

Keep in mind that “savings” is not simply the old mortgage payment minus the new payment. Any time you refinance, you take the remaining balance of your loan and stretch it out over a new mortgage term. If, for example, you have a $300,000 mortgage at five percent, your payment would be $1,610. If after five years you refinanced the loan’s $275,487 balance into a new 30-year term at the same rate. the new payment would be $1,479.

Some lenders will tout the $131 difference as “savings.” Obviously, though, there is no true savings from refinancing. LendingTree’s Refinance Calculator calculates true savings, helping you make better refinance decisions.

When Refinancing Costs More

Refinance rates may be slightly higher than rates for purchasing a home. Therefore, it’s important to let lenders know that you’re considering a refinance when you ask them for rate quotes. Why might refinance rates be higher? There are several reasons:

  • Refinancing homeowners sometimes take cash out, and that adds to the cost of the loan. Most lenders have surcharges for cash-out refinances because they are considered riskier than rate-and-term refinances, which simply replace one mortgage with another.
  • First-time buyers may be able to take advantage of special low-cost mortgages when they buy their homes, but when they refinance they often pay the “going rate.”
  • When there is

    a refinance boom, lenders’ capacity is strained. They have to close purchase loans first, which means refinances might be on the backburner for a while. Lenders frequently absorb the cost of guaranteeing a refinance rate (for example, offering a free 90-day lock on a refi), but to offer this “free” benefit they charge higher rates for refinances than for purchases.

When Refinancing Costs Less

Refinancing doesn’t always cost more than buying a home. Sometimes, homeowners have the option of choosing a streamline refinance. The idea behind streamline refinancing is that lenders who own a loan are already “on the hook” if the borrower fails to pay, so they may wish to lower the mortgage rate and reduce their default risk.

Streamline refinances involve less processing and therefore lower costs. FHA, for example, offers streamline refinances that don’t require appraisals. Those with VA mortgages can refinance them with an IRRRL, or Interest Rate Reduction Refinance Loan. The HARP program for qualifying Fannie Mae and Freddie Mac home loans is a form of streamline refinance as well.

Homeowners may also save on title insurance if their current policy is only a few years old – they can qualify for a discount or “short rate.” When checking refinance rates, you should also shop with a few title companies and see what sort of discount they’re willing to offer.

Find the Best Refinance Rates

Refinance rates normally differ by .25 to .5 percent between lenders on any given day. The best way to get a low mortgage rate is to request quotes from several lenders and compare interest rates, loan terms and closing costs. LendingTree makes it simple to get up to five quotes from lenders who compete for your business, and the service is free to you. Click here to get up to five refinance quotes.

The best refinance for you depends on your time frame (how long you plan to own your home), goals and tolerance for risk. Use our mortgage loan calculators to compare refinance loans of all types.

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