Mortgage refinance rates are the interest rates borrowers pay when they go to refinance their home. Most people refinance their homes in order to receive a lower interest rate, but there are more than a few reasons why a homeowner may want to refinance.
Mortgage refinance rates are often very much in line with any other mortgage loan. However, since the borrower is likely to have received his or her original mortgage well before the date of a refinance, the borrower can still get a lower rate even if rates have not changed since the original mortgage.
Refinancing to Save
A 30-year home mortgage amortizes itself over 30 years. Thus, to pay off a balance requires the full 30 year term. However, at roughly 10 years through the typical 30-year home mortgage, a loan is 20% paid off. Thus, if one were to roll the balance into a new mortgage, the balance could be put into a 15 year mortgage which would allow the borrower to speed up the rate of pay off by 5 years, keep monthly payments virtually the same, and reduce the total amount of interest paid.
Other borrowers decide to refinance to change lending terms. A person with a fixed-rate loan may decide to switch to a variable rate loan, as they do not intend to own the house for a very long time. The switch would allow the borrower to save immediately on their loan balance, and greatly reduce their total interest expense.
On the other hand, a borrower with a mortgage of 30 years with a variable rate might decide that they should switch to a fixed rate loan. In moving to a fixed rate loan, the borrower will experience higher monthly payments and interest rates immediately, but if rates rise the borrower will be insulated from the rate risk. This is one of the most common reasons to refinance, especially with so many borrowers finding out that their 5/1 ARM must be refinanced within 5 years of borrowing funds.
Observe Mortgage Rates
There are several ways to monitor mortgage rates in order to make an informed decision about when might be the best time to refinance. One of the most common methods is to monitor the weekly mortgage rate reports, which announce the previous week’s average rate for all mortgages to prime borrowers.
Next, borrowers may want to check the Wall Street Journal, which publishes the US prime interest rate. All mortgage loans in the United States are based on either the Prime rate, or the LIBOR rate, both of which can be found in the Wall Street Journal, or online.
Finally, speak to a mortgage broker in order to get an idea of rates as they apply to your circumstances. An American borrower who qualifies for the FHA lending program, for example, will receive far lower rates than someone who does not. The same goes for other popular government subsidized lending programs like rural housing programs or the Veterans Affairs loan. These loans have low rates, some of which may be lower than even the best private mortgage loans.
Last but not least, evaluate the cost of a loan against your current loan, or your rent. In many cases, this is the only comparison worth making, and many decide to buy a home rather than rent, or refinance a mortgage rather than wait based solely on what really matters: how a refinance will affect your bottom line. At the end of the day, the best loans are not the loans with the lowest interest rate, or the best lending terms, but the loans that work to reduce your debt, interest due, or monthly payments. It’s all about the cash flow in your personal budgets, not the rate at which you’re being charged.