Here are the average annual percentage rates (APR) on 30- and 15-year fixed mortgage refinances and 5/1 ARM refinances:
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Current Refinance Rates
The average APR for a 30-year fixed refinance loan fell to 6.93% from 7.01% yesterday. This time last week, the 30-year fixed APR was 7.09%. Meanwhile, the average APR on a 15-year fixed refinance mortgage is 6.13%. This same time last week, the 15-year fixed-rate mortgage APR was 6.27%.
The average APR on the 30-year fixed-rate jumbo mortgage refinance is 6.95%. Last week, the average APR on a 30-year jumbo was 7.09%.
How To Get the Lowest Refinance Rate
The main goal of most mortgage refinances is to lower your interest rate and maximize your savings. Naturally, the lower the rate the bigger the savings.
But just because lenders offer a certain rate doesn’t mean you’ll necessarily qualify for it. Often lenders will publish their lowest rate available, but those rates are reserved for borrowers who tick several boxes, like holding a high credit score and a low loan-to-value ratio.
Borrowers can put themselves in the best position to get the lowest rate by doing these three basic things:
1. Raise Your Credit Score
If your credit score is below 760, then you might not qualify for the very best rate lenders offer. That doesn’t mean you can’t get a lower rate than what you currently have, but there is room to improve your score and boost your savings. Before you apply for a mortgage refinance, check your credit score and get a copy of your credit report.
If you find any errors on your credit report, be sure to report them to both the credit bureau and the business that made the error as soon as possible. Both parties must correct the information in order for it to change on your credit report and be reflected in your credit score.
You can bump up your credit score by paying off credit card debt and reducing how much you use your cards. If you do use credit cards for rewards and points, try to pay them off immediately—don’t wait for your monthly statement to come in because your score can change daily.
Avoid applying for new lines of credit before you apply for a mortgage refinance, as credit applications can bring down your score. However, submitting multiple mortgage applications in an effort to get the lowest rate possible won’t hurt your score.
Credit bureaus count multiple mortgage applications within the same period of time as just one application because they recognize that activity as comparison shopping, rather than trying to open multiple lines of credit.
2. Shop Around for the Best Rate
The second step in ensuring you get the best rate available to you is to shop around. Make sure you compare the APR between lenders, not just the rate. The APR is the all-in total of your mortgage costs, which can vary by lender, and will include your closing costs if rolled into your loan.
You should compare offers from at least three lenders before making a decision. But when comparing the interest rate and APR, consider these two scenarios:
If you plan to stay in the home for an extended period, getting the lowest mortgage rate can be more important than paying the lowest closing costs.
If you don’t plan to stay for more than a couple of years, you should look closely at the lender’s loan estimates, which will show you the projected five-year cost. Choose the offer with the lowest initial price tag.
3. Keep Your Loan-to-Value Ratio Low
Finally, the lower your loan-to-value (LTV) ratio is, the lower your interest rate will be. If you don’t have to take cash out of your home when you refinance, you might want to avoid doing so as that will bump up your LTV and likely result in a higher interest rate.
The loan-to-value ratio measures the amount of financing used to buy a home relative to the value of the home. Maximum LTVs permitted when refinancing vary based on the type of property you’re refinancing, whether the loan is a fixed-rate or an adjustable-rate mortgage (ARM) and whether you’re doing a standard refinance or a cash-out refi.
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Types of Refinance Mortgage Loans
The three most common types of mortgage refinance options are:
- Rate-and-term refinance. Allows you to lower your interest rate and/or change your loan term. For example, you might want to refinance your 30-year mortgage with a 5% interest rate into a 15-year mortgage with a 3% rate. This will lower your total interest costs and help you pay off the mortgage faster.
- Cash-out refinance. Gives you the opportunity to access the equity in your home, with the option to also potentially lower your interest rate.
- Cash-in refinance. Lets you apply cash to the mortgage principal, which can help you lower your loan balance, eliminate private mortgage insurance or get a better interest rate.
How Much Does It Cost To Refinance A Mortgage?
Similar to a purchase loan, there are a lot of fees associated with mortgage refinancing, the amount of which will depend on the loan type, lender and third-party services.
Here are some ballpark estimates of the most common refinancing costs:
- Application fee. $0-$500
- Attorney fees. $500-$1,000
- Discount points. 0%-3%
- Flood certification. $15-$25
- Home appraisal. $300-$700
- Origination fees. 0.5%-2%
- Recording fees. $125
- Tax service. Varies
- Title insurance and search. $700-$900
FHA streamline refinance loans also require an upfront mortgage insurance premium (MIP) of up to 1.75% of the base loan amount, plus an annual MIP of up to 1.05% of the base loan amount.
It’s possible to negotiate certain lender fees—such as getting them to waive the underwriting and processing fees. Fees imposed by the government as well as third-party expenses like taxes, attorney review fees and home appraisals can’t be negotiated or waived.
Depending on your lender, you might have the option of a no-closing-cost refinance, where these fees are rolled into your total loan amount. However, you’ll likely end up with a slightly higher interest rate—and you’ll be paying interest on your closing costs.
For those who are considering a Conventional loan, there are no waiting periods between refinances. However, government loans do have waiting periods that should also be considered.
–Christy Bunce, advisory board member
Mortgage Refinance Calculator: Should I Refinance My Home?
If you can qualify for a better rate or would like to lower your payment by extending your repayment period, consider refinancing. Refinancing is ideal if you can reduce your rate by at least one percentage point and remain in your home long enough to recoup the closing costs. Pursuing a cash-out refinance is worth considering if you want to tap your home equity.
Our mortgage refinance calculator helps estimate your new monthly payment and the difference in total interest costs.
Factors That Determine Your Current Refinance Rate
When you want to refinance, it’s a good idea to learn about the factors that affect your interest rate. With enough lead time, you may be able to influence some of them and get a better rate. Here are the primary factors that determine your refinance rate:
- Credit score. Whether you’re doing a rate-and-term or cash-out refinance, you’ll typically need a credit score of 780 or higher to get the best interest rate.
- Loan-to-value ratio. The lower your LTV or the more equity you have, the better your chances of getting the lowest available rates.
- Debt-to-income ratio. The less you owe compared to your income, the more likely you are to get a lower rate. Since your new mortgage payment will be significant, reducing balances on your other debts could help you get a better rate.
- Loan term. The interest rate on a 15-year mortgage is often 0.5 to 1 percentage point lower than the rate on a 30-year mortgage.
- Loan type. The interest rate on conventional and jumbo loans is often higher than the rate on FHA and VA loans.
- Property type. You may pay a higher rate when buying a condo, investment property, second home or manufactured home than if you’re buying a single-family detached home.
- Lender. Different lenders may charge the same borrower significantly different rates, which is why it’s so important to shop around.
Best Lenders To Refinance a Mortgage
Homeowners still have time to lower their monthly mortgage payments by refinancing, as mortgage rates are still relatively low. Homeowners who wish to save money by locking in a lower rate, reduce the length of their mortgage and access some of their home equity without selling their house, now is an ideal time to crunch the numbers to see if refinancing makes sense.
Before you refinance your home, you should shop around for a lender that will offer you the best rate and repayment terms that suit you. Forbes Advisor has reviewed the best refinance lenders. These companies offer some of the most competitive rates and low fees, which are key criteria for refinancing.
Should You Refinance Your Mortgage?
Refinancing your mortgage is generally a good move if you can:
- Change your repayment term. A shorter term can generate a lower interest rate and less interest paid over the loan term, although your monthly payment typically increases. Also, consider extending your term by refinancing into a new 30-year fixed-rate mortgage for a more affordable payment.
- Qualify for a better interest rate. Refinancing after improving your credit can boost your chances of getting a lower interest rate.
- Switch to a fixed interest rate. Homeowners with an adjustable-rate mortgage (ARM) may appreciate refinancing and locking in a fixed interest rate for a more predictable monthly payment.
- Remove mortgage insurance premiums. You can stop paying FHA mortgage insurance premiums by refinancing into a conventional mortgage. If you have at least 20% equity, you’ll avoid private mortgage insurance (PMI).
- Use home equity. Borrowing against your home equity can be a low-interest alternative to unsecured personal loans when you use it to consolidate debts or complete home improvements.
What Are Some Reasons Not to Refinance Your Home?
Keeping your existing home loan is better in several circumstances, such as when:
- Interest costs have increased. As mortgage rates have risen in recent years, there’s a good chance that any refinance rate you qualify for now will be higher than your existing one. Consequently, you’ll wind up paying more interest and have a larger monthly payment should you choose to refinance.
- You can’t afford the closing costs. Mortgage refinancing fees range from 2% to 6% of the loan amount. These expenses increase the total borrowing costs and may offset the benefits of refinancing. It may be better to put those funds toward extra payments or other expenses.
- You’re near the end of your loan. Refinancing may not be worth it if at least half of your mortgage is paid off or you plan on moving soon. In either instance, you have fewer years to recoup the refinancing costs.
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