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How to Compare Refinance Rates for Your Mortgage

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If you’ve been thinking about a mortgage refinance, one of the main action items on your to-do list is taking the time to compare refinance rates. You should also consider your goals, which might include:

  • Lowering your monthly mortgage payment
  • Reducing your mortgage interest rate
  • Tapping your home equity

Once you understand what you’re hoping to gain from refinancing and have gathered multiple mortgage refinance offers, be sure to accurately weigh your options.

This guide will provide you with tips on how to compare mortgage refinance rates and how you can determine whether refinancing is right for you.

We’ll cover:

3 steps to compare mortgage refinance rates

Before you refinance, do some legwork to ensure that the benefits of taking out a brand-new mortgage outweigh the costs. Even if current refinance rates are lower than your existing mortgage rate, refinancing may not be worth it if you don’t come out ahead in the long run. Use the following three steps as your guide.

Step #1: Find current refinance loan rates

No two mortgage refinance offers are alike, so it’s a good idea to gather multiple quotes when you’re considering a refinance. Start by asking your family members, friends and colleagues for lender recommendations. You should also consider refinancing with your current lender, but be sure you don’t stop there.

Mortgage refinance shoppers can save a median 1.22 percentage points on their rate, according to LendingTree’s Mortgage Rate Competition Index. This translates to nearly $60,000 in interest savings over the life of a 30-year, $300,000 loan.

Step #2: Compare refinance terms across lenders

Once you’ve narrowed down your list of potential lenders — preferably two to three — you’ll want to get some rough numbers from each of them.

The Consumer Financial Protection Bureau (CFPB) recommends beginning a loan application with each lender in order to receive a loan estimate, which is a document that provides details about what your refinance might look like (estimated interest rate, monthly payment, etc.) and how much it could cost you.

Still, it’s possible to get an idea of your estimated refinance costs and fees without going through the application process, said Pava Leyrer, chief operating officer at Northern Mortgage Services in Grandville, Mich. Ask each lender for a worksheet that includes ballpark figures for fees before requesting a loan estimate. That’s because official loan estimates are only valid for 10 business days. If you don’t express your intent to proceed within that time frame, the lender may close out your application, forcing you to restart the process.

What to know about loan estimates

When requesting a loan estimate, be prepared to provide the following information, according to the CFPB:

  • Name
  • Income
  • Social Security number
  • Property address
  • Property’s estimated value
  • Desired loan amount

Sharing your Social Security number is especially important because each lender will use it to check your credit reports and scores. The information found in your credit profile, such as your debt load, helps determine what each lender would be willing to offer you.

As mentioned earlier, loan estimates have a short shelf life. Another reason this matters is because the inquiries placed on your credit report each time you apply for a loan can drop your score by a few points. Keep your rate shopping period within 30 days to minimize the effect on your credit score, according to myFICO.

You’ll receive a loan estimate within three business days of each application you complete. Use it to compare apples to apples, and keep in mind that although the loan terms listed the documents aren’t set in stone, they will help you see the variations in costs between lenders. Consider the following details as you review each loan estimate:

Interest rate. It’s not enough to just look at the mortgage interest rate listed on your loan estimate. Consider the type of interest rate — is it fixed or adjustable? If it’s an adjustable rate, how many years will pass before the rate changes? It’s almost certain that your rate will increase when it adjusts for the first time, which affects both your monthly payment amount and the overall cost of the loan.

Fees. Pay close attention to page 2 of each loan estimate your receive. That’s where the lender fees and other costs are listed. In addition to comparing refinance rates, you’ll want to compare closing costs between lenders. These expenses typically include:

  • Origination fees. Fees assessed to cover the cost of preparing a loan package for the underwriter, including application and underwriting fees.
  • Appraisal fee. The cost of the real estate appraisal to determine the home’s market value.
  • Inspection fee: An inspection may be required in addition to the appraisal.
  • Credit report fees. The cost of pulling your credit report.
  • Title search fee: Fees for conducting a title search and ensuring there are no liens on the title so the property may be refinanced.
  • Taxes. Any local, state or federal tax payments required for the escrow account.
  • Attorney fees. Charges from any attorney whose services were required on the refinance.
  • Recording fee. A charge for filing the refinance with the local governing authority that oversees deed and mortgage recording.
  • Mortgage insurance premium. Typically required if you have less than 20% equity in your home.

Look closely at how the fees differ from lender to lender. In some cases where third parties are handling the activities, such as title search and attorneys, you may be able to shop around and get a better deal yourself. The CFPB has a home loan toolkit with worksheets that may help you parse various costs.

Points. You may be given the option to pay for discount points, which allow you to reduce your interest rate. One discount point is equal to 1% of the loan amount. For example, on a $200,000 mortgage, one point would cost you $2,000. In some cases, your points may be tax-deductible, up to the $10,000 limit imposed by the Tax Cuts and Jobs Act of 2018.

Cash to close. At the bottom of page 1 on your loan estimate, you’ll see a breakdown of your estimated cash to close, which includes closing costs and down payment funds. Be sure to compare the estimated total you’re expected to bring to closing table on each loan estimate.

Total closing costs can amount to thousands of dollars, so it’s important to review them carefully. One lender may charge fees that others don’t, adding to the total loan cost. Remember to negotiate with your lender where possible.

Risky loan terms. Watch out for balloon payments and prepayment penalties, which are found on page 1. A balloon payment is a lump-sum payment due at the end of your loan term, while a prepayment penalty is a charge you’ll incur if you pay off your mortgage prior to a specific period — within two years after closing on your loan, for example. It’s wise to avoid mortgages with these types of features.

Step #3: Consider other factors

You’ll also want to vet the lenders you’re considering doing business with. If you see several negative lender reviews and complaints that customers have serious problems after deciding to work with them, or the company has terrible customer service, that may factor into your final decision.

Additionally, think about whether you prefer to do business in person or if you’re more comfortable with a remote relationship. This can help you decide between a lender that has brick-and-mortar locations near you or one that has a heavier online presence.

Finally, ask yourself these questions during the process:

  • Do you need an appraisal for your refinance? Would you still want one if it can be waived?
  • Do you have property taxes coming due in the next 60 days from your refinance closing date? If so, you’d need to bring that money to the closing table or have it deducted from the funds in your previous escrow account.
  • Is your homeowners insurance premium coming due around your closing date? Will the premium cost be added to your loan amount?
  • If you have a government-backed loan (FHA, VA or USDA), can you take advantage of a streamline refinance?

How refinance loan rates can affect your mortgage payment

Interest rates are unpredictable and change daily, so you can’t be sure what your refinance loan rate will be until you get a rate lock.

Even a small reduction in your interest rate can mean significant savings over the life of your loan. Let’s look at an example, using LendingTree’s mortgage refinance calculator. This borrower is refinancing a 30-year, $280,000 mortgage, first borrowed in 2004, into a 15-year mortgage, as seen in the table below.

Original mortgage Refinanced mortgage 
Loan amount  $198,937 $198,937
Interest rate  6% 4%
Monthly payment  $1,679 $1,466
Total loan cost  $300,495 $267,926

Based on the numbers above, refinancing into a 15-year mortgage with an interest rate that is two percentage points lower than the original rate, the borrower can lower their monthly mortgage payment by more than $200 and their total loan cost by more than $32,000.

Best places to refinance a mortgage

It’s necessary to consider the different categories of home refinance companies to help you decide which lender is best for you. Each type of lender should provide their own rate and closing cost estimates, making it simpler for you to compare terms. Below are some common types of mortgage lenders:

  • Institutional lender: This would be your traditional bank or credit union. The money comes from its mortgage lending department, and they typically service the loan directly.
  • Mortgage bank: A mortgage bank either has its own money to lend you or will access it from investors. They may sell your loan to a third-party servicer.
  • Mortgage broker: A mortgage broker serves as the middleman between a borrower and mortgage lender. You work with the broker to connect to a lender that is willing to fund your loan.
  • Nonbank lender: A nonbank lender offers financial products, such as mortgages and student loans, but they don’t take deposits like a bank or credit union does. Examples of nonbank lenders include loanDepot and Quicken Loans.

You could simplify your lender search by using an online marketplace like LendingTree to fill out a single form and compare multiple offers. For more guidance, check out our picks for the best mortgage refinance lenders.

Is it time for you to refinance?

Refinancing your mortgage to reduce your interest rate, secure a smaller monthly payment or take out a portion of your available equity to cover higher education or home improvement expenses all sound like worthwhile reasons to refinance your mortgage. However, there are some circumstances when it may not be a good idea to refinance. For example, if refinancing will trigger a prepayment penalty, it may be best to wait it out. Compare how your long-term mortgage costs stack up against your estimated refinance savings to get the best sense of whether it makes sense to refinance now.

Below are other reasons you may want to pause before taking out a new mortgage:

  • If your credit score is low. While it’s possible to qualify for a mortgage with a credit score as low as 500, lower scores typically mean more expensive mortgages. Depending on your circumstances, it may be worthwhile to improve your credit score before refinancing. Pay down debt, stay current on payments and then look at your score again in a few months to see if you can get a better deal.
  • If you’ve had your existing mortgage for a long time. In the later years of your mortgage, most of your payment is going toward principal. Think twice before refinancing older mortgages, especially if you’re extending your loan term. The amortization process will start over again and most of your payments will be applied to interest, possibly slowing the rate at which you pay back your loan.
  • If you’re moving soon. The costs of refinancing typically don’t make sense if you’re simply incurring more debt. LendingTree’s refinance calculator can help you determine your break-even point, which is when any savings will offset the costs of refinancing.

Leyrer says that if you’ve made any late mortgage payments in the last 12 to 24 months, you may not be able to refinance. Other reasons to wait it out may include having very little to no equity, or not receiving enough of a benefit from the refinance — virtually no savings on your payment or rate, for example — she added.

The bottom line

Comparing refinance rates with your existing mortgage rate is not as simple as eyeballing two quoted interest rates. Deciding to refinance your mortgage requires research on your part, including making the effort to compare refinance rates, rather than just sticking with your current lender because it seems like the easiest thing to do.

But don’t decide on a lender solely based on who has the lowest rate. Consider the closing costs and fees involved before moving forward.

As you shop around, carry this piece of advice from Leyrer with you:

“Communicate what you wish to accomplish, watch to see it was portrayed as you wanted and stay in touch,” she said.

 

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