Refinance rates

Mortgage refinance rates, explained

Refinance rates are the interest rates lenders offer when you’re replacing your current mortgage with a new loan, often with different terms or conditions. As such, refinance rates may be higher or lower than the original mortgage rate, depending on market conditions and your financial circumstances.

When to refinance your mortgage

There are various reasons you might consider refinancing, including the potential for lower refinance rates or due to a significant change in your finances. Let’s look at a few reasons some homeowners might explore mortgage refinancing:

Lower rates

A big reason to refinance is to help secure a lower interest rate. By lowering your rate, you can potentially reduce both the size of your monthly payments and the total interest you pay over the lifetime of the loan.

Shorter terms

Another reason is to shorten the terms of your mortgage. This could mean moving from a 30-year to a 15-year mortgage, for example. While reducing your mortgage term could potentially increase what you pay monthly, it may also substantially decrease the amount of interest you pay overall.

Removing PMI

Typically, you can remove private mortgage insurance (PMI) once you reach 20% equity in your home. If your home's value has gone up since you got your loan, you might now own 20% of its value, even if you haven't paid down the loan to that level. This happens because the higher home value lowers your loan-to-value ratio, increasing your equity percentage without you having to make extra payments on the loan.

How to get the best mortgage refinance rate

When homeowners seek to refinance, securing a better rate is often a top priority. The way to get a lower refinance rate can vary based on individual circumstances, but there are few general tips that may help:

• Improving your credit: Your credit score is a major factor that lenders consider when determining your refinance rate. Generally, higher credit scores may help qualify you for lower interest rates. Improving your credit score by paying bills on time, reducing debt and correcting any inaccuracies in your credit report can be a helpful first step before you refinance. 
• Comparing multiple rates: Different lenders evaluate refinance applications differently, so getting multiple quotes may help you find more competitive rates. It might be wise to note the annual percentage rate (APR), as that includes the interest rate along with any fees the lender charges to give you a clearer picture of your expected annual costs of borrowing. 
• Timing your application: Mortgage refinance rates fluctuate based on economic conditions and market trends. Keeping an eye on these trends may give you an opportunity to refinance when rates are generally lower, potentially saving you money over the life of your loan. 
• Evaluating different terms: Different loan terms offer different rates. For example, shorter loan terms tend to carry lower interest rates compared to longer terms but with higher monthly payments. Depending on your financial situation, choosing a shorter term might be a cost-effective decision if you can manage the higher monthly expenses.

Financing a home can be easy when you know how. Browse our tools, resources and articles for help understanding how buying a home, refinancing a mortgage and tapping into your home's equity works.