Can I refinance my house and keep my interest rate?
You don't need to change your rate or term when you refinance – you can also take money out of your home equity with a cash-out refinance. You accept a higher principal loan balance and take the difference out in cash when you take a cash-out refinance.
Most refi's take advantage of either a better interest rate, to eliminate PMI and reduce the monthly payment, or a cash-out to obtain the equity. IF you refi to a new 30-year term, as many do, you will essentially give up the interest you've paid on the original.
With a cash-out refinance, you'll pay the same interest rate on your existing mortgage principal and the lump-sum equity payment. Most lenders offer fixed interest rates so you can easily calculate your monthly payment.
If you have a lot of high-interest debt, getting a cash out refinance at a higher interest rate than your current mortgage rate might make sense. With a cash out refinance, you replace your current mortgage with a new mortgage for a higher amount and get the difference in cash at closing.
Refinancing too often or leveraging too much home equity
Avoid making the mistake of refinancing excessively to land a low interest rate. The charges to refinance repeatedly could add up over time, negating the benefits. Be wary of also leveraging home equity too often.
It is usually worth to do so if you can lower your interest rate enough to save money month-to-month and in the long term. Depending on your current loan, dropping your rate by 1%, 0.5%, or even 0.25% could be enough to make refinancing worth it.
When you refinance a mortgage and start over at the beginning of a new 30-year loan, you're likely to get a lower monthly payment. But all those years of interest payments will add up.
Product | Interest Rate | APR |
---|---|---|
20-Year Fixed Rate | 6.66% | 6.72% |
15-Year Fixed Rate | 6.36% | 6.43% |
10-Year Fixed Rate | 6.27% | 6.35% |
5-1 ARM | 6.61% | 7.94% |
Refinancing will hurt your credit score a bit initially, but might actually help in the long run. Refinancing can significantly lower your debt amount and/or your monthly payment, and lenders like to see both of those. Your score will typically dip a few points, but it can bounce back within a few months.
Refinancing could make sense if your existing rate is higher than the rate you qualify for now. However, refinancing is probably a bad idea if your current rate is lower. Why? Because changing from a lower rate to a higher one translates into higher monthly payments over the life of the new mortgage.
What are interest rates today?
Product | Interest Rate | APR |
---|---|---|
20-Year Fixed Rate | 6.66% | 6.71% |
15-Year Fixed Rate | 6.37% | 6.45% |
10-Year Fixed Rate | 6.23% | 6.31% |
5-1 ARM | 6.66% | 7.93% |
You can't get a lower interest rate: If your goal is to reduce your interest costs, right now isn't the best time to refinance. You're likely to end up with a higher rate, plus you'll need to cover closing costs on your new mortgage.
Refinancing can lower your monthly payment, but it will often make the loan more expensive in the end if you're adding years to your mortgage. If you need to refinance to avoid losing your house, paying more, in the long run, might be worth it.
You don't have to lose any equity when you refinance, but there's a chance that it could happen. For example, if you take cash out of your home when you refinance your mortgage or use your equity to pay closing costs, your total home equity will decline by the amount of money you borrow.
Refinancing doesn't necessarily have to affect the equity in your home, but in certain cases it definitely can. Factors that determine the equity in your home include the balance owed on your mortgage and how much your home is worth. The difference between these two figures is your home equity.
Conventional refinance: For conventional refinances (including cash-out refinances), you'll usually need at least 20 percent equity in your home (or an LTV ratio of no more than 80 percent).
In its March Mortgage Finance Forecast, the Mortgage Bankers Association predicts that mortgage rates will fall from 6.8% in the first quarter of 2024 to 6.1% by the fourth quarter. The industry group expects rates will fall below the 6% threshold in the first quarter of 2025.
Current mortgage interest rate trends
The average 15-year fixed mortgage rate similarly fell, going from 6.21% to 6.11%. After hitting record-low territory in 2020 and 2021, mortgage rates climbed to a 23-year high in 2023. Many experts and industry authorities believe they will follow a downward trajectory into 2024.
Mortgage giant Fannie Mae likewise raised its outlook, now expecting 30-year mortgage rates to be at 6.4 percent by the end of 2024, compared to an earlier forecast of 5.8 percent.
A rate-lowering refinance reduces the rate of return on future extra payments, which could induce the borrower to reduce or stop such payments. However, the principal motivation for making extra payments seems to be to get out of debt faster, and the refinance won't change that.
Why is my refinance loan more than I owe?
A cash-out refinance allows you to use your home as collateral for a new loan as well as some cash, creating a new mortgage for a larger amount than what is currently owed.
In today's market, a good mortgage interest rate can fall in the high-6% range, depending on several factors, such as the type of mortgage, loan term, and individual financial circ*mstances. To understand what a favorable mortgage rate looks like for you, get quotes from a few different lenders and compare them.
Legally speaking, there's no limit to how many times you can refinance your mortgage, so you can refinance as often as it makes financial sense for you. Depending on your lender and the type of loan, though, you might encounter a waiting period — also called a seasoning requirement.
How Much Does It Cost To Buy Down An Interest Rate? The cost for each discount point depends entirely on the amount you, as the borrower, take out on the loan. Each point that a borrower pays is equivalent to 1% of the loan amount.
A rate-and-term refinance for a conventional mortgage loan typically requires at least a 620 credit score — that is, as long as your loan-to-value ratio is 75% or less, you have at least two months of cash reserves in the bank, and your debt-to-income ratio is under 36%.
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