How to Refinance Your Mortgage:

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Where are mortgage rates heading?

The Federal Reserve is driving mortgage rates lower and anchoring Treasury rates through its policy of asset purchases, or what’s known as quantitative easing. It may be hard to believe, but mortgage rates have more room to fall as they closely track the 10-year Treasury yield. The current spread of 220 basis points is well above the average spread of 170 basis points we saw prior to the coronavirus pandemic. Since the Fed announced its decision to purchase unlimited mortgage-backed securities in March, the spread in rates has narrowed by 50 basis points, resulting in the record lows we’re seeing now.

It’s entirely possible we’ll see average 30-year mortgage rates drop to 2.70% by the end of the year if the spread continues to narrow at the same pace. Rates could even hit 2.30% in 2021, especially if Treasury rates remain close to their current levels. For homeowners who have yet to refinance, this presents a great opportunity to take advantage of lower rates and potentially reap substantial savings on interest payments.

– Tendayi Kapfidze, LendingTree Chief Economist

How does a mortgage refinance work?

Refinancing replaces your old loan with a new loan to help improve your finances, typically through a lower refinance rate, a shorter loan term or converting from an adjustable-rate loan to a fixed-rate loan. You may want to lower your monthly payment, pay off your loan faster or even tap a portion of your equity for home improvements or debt consolidation.
  • How to get the lowest refinance rates

    The best way to get the lowest refinance rates is to shop around with multiple lenders. Mortgage refinance rates change daily, so make sure you’re comparing current refinance rates within the same time frame. 

    The better your refinance rate, the lower your payments will be and the more money you’ll save in interest. Refinance lenders will evaluate your credit and finances in the application process. Having a credit score of 740 or higher, a solid repayment history, low debt-to-income ratio and 20% or more equity in your home are just a few ways to get the best mortgage refinance rates

    Using a mortgage rate comparison site like LendingTree helps you compare several different lenders at once — just input the basic parameters of what you’re looking for and matching lenders will contact you.

  • Are refinance rates higher than mortgage rates?

    They can be, but it largely depends on your credit history and why you’re refinancing. Credit scores play a big role in determining your refinance rate offers. The higher your score, the lower your interest rate will be. If you’re taking cash out, you may pay a slightly higher interest rate. Refinancing to cut your monthly payment or pay your loan off more quickly may result in lower rates.

  • When is the best time to refinance my home?

    It may be a good time to refinance if getting a new loan with a lower mortgage refinance rate or shorter term will lower your monthly mortgage payments or reduce your lifetime interest. Refinancing is also a smart, financially sensible move if you plan to stay in your home long enough to recoup your closing costs, also known as the break-even point.

    To calculate when you’ll break even, divide the closing costs of a loan by the monthly savings. The result is the number of months you’ll need to stay put in order to realize the savings from a refinance. The less amount of time you have to wait to reach the breakeven, the more cost-effective the refinance.

  • Does refinancing hurt my credit score?

    A mortgage refinance is a new loan, so your score may be impacted by the credit inquiry, loan amount and loan terms, along with a new “open” date, according to myFICO.

    When you apply for a mortgage with multiple refinance lenders, your credit will be checked each time. No matter how many lenders you shop with, all of the checks will count as a single inquiry on your credit report if you complete your shopping within a 45-day window. In the long run, a mortgage refinance may actually improve your credit score, especially if you use cash-out refinancing to consolidate high-interest credit card debt.

  • Is it cheaper to refinance with current lender?

    You can certainly refinance with the same lender, but the only way you’ll know if they offer the best refinance rates is to shop around. Compare current refinance rates from your lender with offers from at least three to five other lenders. Another valuable refinance tip: Once you choose the best offer, get a mortgage rate lock. If you don’t, you could end up with a higher refinance rate at closing.

  • What credit score is needed to refinance?

    For most conventional loans, you need a minimum credit score of 620 to qualify for a refinance.
    Government-backed loans insured by the Federal Housing Administration (FHA) require a 500 credit score to refinance an FHA loan, but the lower credit score will result in a much higher interest rate.

LendingTree Study: Cities Where Mortgage Refinance Borrowers Saved the Most by Shopping Around - Q3 2020

By Tendayi Kapfidze, LendingTree Chief Economist

Since the start of the COVID-19 pandemic earlier this year, mortgage rates have remained near record lows. This trend has created an opportunity for homeowners to refinance their mortgages and potentially save a significant amount of money. 

To help consumers understand how much they might save, LendingTree created its Mortgage Rate Competition Index. It measures the basis-point spread between high and low annual percentage rates, or APRs, offered to users on the LendingTree platform through the third quarter of 2020. 

On average, LendingTree found that in 50 of the nation’s largest cities refinancing could save homeowners an average of more than $44,000 over the life of their loan. That could translate to nearly $35,000 in Columbus, Ohio, or more than $59,000 in Oklahoma City.

Key Findings

Comparing refinance offers can yield big savings for borrowers in some of the nation’s largest cities. Refinance borrowers can save the most in Oklahoma City ($59,255), Minneapolis ($50,875) and San Francisco ($50,730).

Oklahoma City, Harrisburg, Pa. and Minneapolis are the cities where refinance borrowers see the largest spread in APRs when they shop around. The average index in these three areas is 1.02. This spread yields average lifetime interest savings of $50,772.

Even in cities where savings aren’t as robust as they are in Oklahoma City or Minneapolis, significant savings are still possible. For example, in Columbus, Ohio, where potential savings are the lowest, refinance borrowers can still save $34,786 over the life of their loan by shopping around.

  • Cutting back the total interest paid over a loan’s lifetime can translate into meaningful savings on a monthly and annual basis. For example, refinance borrowers across the country can save an average of about $124 a month, or $1,487 each year.

What the index means for you

Let’s say a borrower is offered two loans on the LendingTree platform – one with an APR of 4% and another with an APR of 3.5% – the spread would be 0.5%, or 50 basis points. The wider the index, the more a potential buyer can save by shopping around with multiple lenders.

For this report, we used the index to analyze the difference in rates and potential savings for mortgage refinance borrowers in 50 of the largest cities in the United States. By using LendingTree to shop around before refinancing, a borrower could potentially save an average of nearly $44,000 over the life of their loan.

What is the Mortgage Rate Competition Index?

The LendingTree Mortgage Rate Competition Index is a proprietary measure of the dispersion in mortgage pricing. It measures the APR spread of the best offers available on LendingTree relative to the least competitive (i.e., the highest) rates on 30-year, fixed-rate mortgages. Our research shows that mortgage rate competition varies with the financial and operational measures of activity in the mortgage markets. More details on the index are available in a LendingTree white paper.

How is the index formulated?

mortgage shopper enters their information on They input loan variables, including the proposed amount and down payment, and property variables, including property type and location. Using our proprietary algorithm, LendingTree matches borrowers with lenders based on the criteria they provide. Interested lenders return a rate and fee offer. For our index, we combine the rate and fees into an APR and calculate the spread as follows:

The spread is the difference between the highest and lowest offers. In this example, 4.62-4.21 = 0.41. We repeat this calculation across 30-year, fixed-rate loans and then find the median of the individual spread, which is our index value. This is done separately for the population of purchase and refinance loan requests. For the purposes of this study, we used data on the combined statistical area (CSA) or metropolitan statistical area (MSA) levels to approximate data on a city level.

LendingTree research analyst Jacob Channel contributed to this report.

Additional mortgage refinance FAQS

Refinancing comes with many benefits, but there are risks, too. Here are the most notable risks that come with mortgage refinancing:

  • – Losing your home to foreclosure if you default on the new loan
  • – Not breaking even on your closing costs
  • – Restarting the clock on your loan term and paying more total interest
  • – Misusing cash-out refinance funds in ways that add to your debt load without improving your finances

The most common types of refinances are offered by conventional lenders, as well as those approved by the Federal Housing Administration (FHA) and the U.S. Department of Veterans Affairs (VA). Here are details about each option:

    • Conventional refinance. Ideal for borrowers who have good credit, stable incomes and low DTI ratios.
    • FHA refinance. Homeowners with scores below 620 may benefit from the easier qualifying guidelines offered by FHA-approved lenders. If you already have an FHA mortgage, you may be eligible for an FHA streamline refinance, which doesn’t require income verification or a home appraisal.
  • VA refinance. VA loans include less stringent mortgage refinance requirements for eligible active-duty and veteran military borrowers, and they don’t require PMI. Homeowners with a current VA loan may be eligible for the interest rate reduction refinance loan (IRRRL) program to lower their payment with minimal documentation and no appraisal.

It can take 30 to 45 days to refinance a home. Your lender might take more or less time to close a refinance, depending on how much business they have and whether they use a digital mortgage application process.