Compare Refinance Rates
Even a slightly lower interest rate can save a homeowner thousands of dollars over the life of their loan. You can play with this yourself using our refinance calculator. Try putting in a rate that’s 0.5% or 1% below the one you currently have. You might be surprised by the resulting interest savings.
That means that if rates are currently lower than what you’ve got on your mortgage, refinancing might benefit you. Choosing to refinance also helps homeowners who have an adjustable-rate mortgage (ARM) but want the predictability of a fixed rate, who want to cash out some equity, or who want to shorten their loan term.
There are a lot of reasons why you might consider refinancing. It only makes sense if you’ll see some financial upside from it, though. To make sure you will, it’s important to compare refinance rates. Understanding how a refi works helps you get a feel for your options here, so let’s dig in.
What is a refinance?
The name “refinance” might make you think you’re “re”-doing your home’s “financing” (i.e., changing your mortgage). Actually, though, a refi doesn’t change your current mortgage. Instead, it completely replaces your current loan with a new one.
Because you’re getting a totally new mortgage, refinancing lets you change as much as you want about your loan. For starters, if rates have dropped or your financial profile has improved, you can potentially qualify for a lower interest rate. You can choose a fixed or adjustable interest rate, too.
You also have the option to pick a shorter or longer loan term (assuming you qualify). The former means paying less in interest, but the latter makes your monthly payments more affordable.
Finally, when you refinance, you can decide how much you want to borrow with your new mortgage. Most lenders allow for up to 80–90% of your home’s current value.
Say your house is worth $400,000 and you have $250,000 left on your current mortgage. You could get a new mortgage for $250,000, use it to fully pay off your old loan, and move forward with your refinance. Or, if you want to liquidate some of your equity in your house, you might borrow $300,000 with your new mortgage. $250,000 would go to paying off your old mortgage, letting you pocket $50,000 (after closing costs).
The pros and cons of refinancing a mortgage
If you’re thinking about refinancing, consider the upsides and drawbacks before you move forward.
Pros of a refinance
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Because you’re getting a totally new mortgage, you can get a different (ideally lower) interest rate.
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You can also choose a shorter or longer loan term, depending on what best fits your financial goals.
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Refinancing also lets you move from an adjustable-rate mortgage to a fixed-rate one if you want more predictable payments, or from a fixed-rate loan to an ARM if you want to get a lower interest rate and plan to sell soon.
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With a cash-out refinance, you can turn some of the equity in your home into cash in your pocket.
Cons of a refinance
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Refinance means paying a whole new round of closing costs. And with no home seller in the mix like when you bought the house, there’s no one else to take any of those on.
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When you refinance, you reset the clock on your loan repayment. Unless you’re refinancing into a shorter-term loan (e.g., from a 30-year mortgage to a 15-year one), that leaves more time for interest to accrue, costing you more overall.
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If you choose a cash-out refinance and take too much equity out of your house, you could wind up underwater on your mortgage (owing more than your house is worth).
How to compare Refinance Rates mortgage rates
If you only take one piece of advice when you’re getting a mortgage, let it be this: compare rates from at least three different lenders. Doing so can save you thousands of dollars over the life of your loan.
To make it easier for you to put the work in here, follow these steps:
Step 1: Understand your borrower profile
First, you want to get a handle on how mortgage lenders are going to see you. If you look like you’re going to be able to repay your home loan fairly easily, they’ll offer you more favorable conditions. If you look high-risk, you’re going to pay more for your mortgage. Specifically, you’ll be charged a higher interest rate.
So, what makes a borrower low- or high-risk? To decide what kind of loan to offer to you (if any), lenders look at a lot of factors. The biggest ones here include:
- Your monthly income — you don’t want an overly large chunk to have to go toward paying your monthly mortgage bill, which lenders measure with your debt-to-income (DTI) ratio
- Your credit score, which essentially tells them how good you’ve been with managing money in the past
- Your loan-to-value (LTV) ratio (higher is riskier) — the price of the house and your down payment size both come into play here
If you’re not in good shape in any of these areas, putting in some work before you buy (e.g., working on your credit score, lowering your DTI ratio) can help you get a lower interest rate.
Step 2: Use rate tables to see what’s on offer today
There are lots of resources online that show you rate offers from leading lenders. Use a mortgage rate table to get a feel for what kind of interest rates are available from financial institutions that provide home loans in your area.
Ideally, that rate table lets you input personal information, like your credit score and the price of the house you want to buy. This way, the rates you get shown should align with what you’re actually eligible to get. A lot of lenders advertise low starting rates, but only the “best” borrowers will be approved for them once they apply.
Step 3: Get preapproved with three lenders
Once you’ve picked out a few lenders that look good to you, go through their preapproval process. That will mean filling out some paperwork, but it’s the best way to figure out what you can really qualify for in terms of loan size and interest rate.
Have financial documents — like your bank statement and pay stubs — handy to make it easier to complete your preapproval applications.
Step 4: Compare preapprovals
When you get preapproved, the lender should give you documentation about your potential mortgage. Ideally, this gives you a feel for the total amount you’re borrowing, the repayment term, the interest rate, fees, and closing costs.
Line up your quotes from each lender and go through them, paying special attention to the annual percentage rate (APR). This tells you how much you’ll pay each year for the loan including not just interest, but also fees. By looking at APRs, you get a clear idea of what you’ll truly pay if you choose that specific mortgage. This helps you identify the best option for yourself and your financial goals.
If you’re ready to start comparing Refinance Rates rates, use our rate table to get started. We have fields up top where you can input key details like your credit score range and zip code so we can best tailor the mortgage rate offers to you.