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Borrowers thinking about their first-time home loan refinance rate options naturally want to know about refinance mortgage rates. There are many factors to consider, but a simple drawing of a triangle or pyramid can provide some easy-to-understand answers.

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What You Need To Know About Refinance Mortgage Rates

August 17, 2021

What You Need To Know About Refinance Mortgage Rates
Borrowers thinking about their first-time home loan refinance rate options naturally want to know about refinance mortgage rates. How high or how low will the interest rates you might be offered go? There are many factors to consider, but a simple drawing of a triangle or pyramid can provide some easy-to-understand answers.

Mortgage Rates Can Change Daily

Refinance loan interest rates are provided by lenders on a daily basis, and they may be adjusted daily depending on mortgage rate trends.

They can also be adjusted multiple times in a day depending on market conditions and other variables. This is the bottom or foundation of our pyramid--the daily rates offered by the lender.

There are two “legs” to our triangle or pyramid. One leg is how your FICO score might affect the rate a lender will offer you. When refinancing your credit score is just as important in most cases as the baseline mortgage rate. 

Credit Scores Matter When Determining Refinance Rates

Having a better credit score means a potentially lower rate offered by your lender and based on the loan amount, you can count on lower monthly payments based on the interest charges. You can see this concept at work by using different mortgage rates for your refinance loan in an online mortgage calculator.

The last "leg" in our triangle has to do with the term of your mortgage. No matter what your interest rate, a 15-year loan will cost less overall in principal and interest payments. A 30-year loan may have a higher interest rate than a 15-year loan, though some like to offset that by purchasing discount points to lower their rates. 

Shorter Loans May Cost Less

15-year loans have higher monthly payments than 30-year mortgages, which is why some borrowers might shy away from them. But if lower mortgage payments are not your main goal, a 15-year loan may be a very good idea. Check current refinance rates to learn more about how much your 15-year loan might cost compared to a longer term.

Others opt for adjustable-rate mortgages, but if you plan to keep your home for the full loan term this is a move that may earn you a lower interest rate at first, but that rate will be adjusted over the duration of the loan. 

Run the Numbers

In the same way that you run the numbers when considering your options for a purchase loan, you should consider what the average rates are on a fixed-rate mortgage and compare them to the later stages of an adjustable-rate mortgage.

Refinancing your current loan balance means paying off the mortgage early. If you are refinancing into an FHA mortgage and out of a conventional loan, check to see if you are charged a penalty for early payoff. This would be an additional expense in addition to your funding fee or other costs for the mortgage.

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