Mortgage refinance rates 2024
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Updated 11:38 p.m. UTC May 4, 2023
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Sadly, those rock bottom refinance rates from 2020 and 2021 are long gone. Even so, refinancing your mortgage could still make sense if you want to switch to a shorter-term loan or need to tap into your home equity.
If you’re ready to refinance your mortgage, here’s how rates are trending and how to get the best rate on your home loan.
Current mortgage refinance rates
As of May 4, the average annual percentage rate (APR) for a 30-year refinance rate is 6.95%, down slightly from 7% the week before.
The average rate of a 15-year mortgage refinance is 6.27%, not a big increase from 6.23% the week prior.
While fixed rates have stayed relatively steady the last few weeks, adjustable-rate mortgages (ARMs) have been skyrocketing. The average 5/1 ARM refinance rate is currently 7.27%, up drastically from 5.74% the week before.
What the experts are saying about mortgage refi rates
In its battle against high inflation, the Federal Reserve plans to forge ahead with its tightening policy during 2023, which will continue to indirectly impact fixed-rate refinance loans. While yields on Treasury bonds have a direct impact on mortgage rates, the Fed’s monetary actions and inflation have an indirect influence.
As a result, many experts predict that mortgage rates will stay elevated in 2023. For instance, Freddie Mac forecasts rates will remain above 6%, dropping from the average rate of 6.8% in the fourth quarter of 2022 to 6.2% in the final quarter of 2023.
On the other hand, some experts have a more rosy outlook.
“Based on what I’m seeing in the market in terms of curbing inflation, I would suspect that in the spring of 2023, rates will decrease to [the] 4.5% to 5.25% range,” says Stephen Rinaldi, president of Rinaldi Group LLC.
How to get the best mortgage refinance rate
If you plan to refinance, Carol Toren, senior vice president and head of consumer direct lending at Flagstar Bank, advises borrowers to consider various factors to secure the best rate.
“Loan term, loan amount, loan-to-value ratio and loan product are key,” says Toren. “For example, you’ll typically pay a lower interest rate on a 15-year mortgage than you would for a 30-year fixed-rate loan, and all other things being equal, the less you refinance, the less costly your refi will be.”
Here are five steps to get the best mortgage rate:
- Get familiar with your credit score. A stronger credit score can go a long way to reducing rates—improving your credit by even a few points can make a difference. Before you apply, check your credit report to make sure it doesn’t contain any errors. If it does, removing these from your history could help lift your score. Other potential ways to improve your credit include paying all of your bills on time and repaying debt.
- Compare multiple lenders. Don’t go with the offer of the first lender you see. Make it your mission to get quotes from several lenders. Comparing different lenders’ rates, fees and other loan features could save you money in the long run.
- Increase your down payment. The lower your loan-to-value (LTV) ratio—the amount you owe on your mortgage divided by your home’s appraised value—the better your chance of getting a lower rate. Lenders generally view loans at or near the appraised value of a home as a higher risk. An LTV ratio above 80% is usually considered high, so it’s a good idea to start saving for at least a 20% down payment to avoid greater overall costs.
- Choose a shorter term. Typically, the shorter the loan term, the lower the interest rate. However, the downside of shorter-term loans is that the monthly payments are higher, so review your total monthly debt obligations and income first to see if you can manage to pay more each month.
- Ask lenders about “buying down” your rate. Most lenders give borrowers the option to “buy down” their rate through discount points. One point equals 1% of your loan and typically reduces your rate by 0.25%. So for example, if your refinance balance is $300,000 at 5.75% interest and you buy one point, you could pay $3,000 at closing to buy down to a 5.50% rate. Make sure to do the math beforehand to determine if you’ll be in the home long enough to recoup the cost.
Frequently asked questions (FAQs)
There are three major types of mortgage refinancing loans:
- Rate-and-term refinance:With this kind of loan (also known as a no cash-out refinance), you can change the rate, term or both of your current loan. For example, you might choose this type of loan due to a drop in interest rates.
- Cash-out refinance: This lets you replace your current loan with a new, larger loan while pocketing the remainder with a lump-sum payment to use how you wish. Cash-out refinancing typically has higher interest rates and requires a better credit score to qualify since there’s greater risk to the lender.
- Streamline refinance: If you have a loan backed by the Federal Housing Administration (FHA), U.S. Department of Agriculture (USDA) or Department of Veterans Affairs (VA), this could be an option for you. Unlike a typical refinance, a streamline refinance involves less paperwork and generally doesn’t require a new home appraisal. However, borrowers are required to pay an upfront fee and annual mortgage insurance premium (MIP) fees.
Your mortgage interest rate is the annual rate you pay to take out your loan exclusive of any fees, points, or other costs associated with refinancing, such as closing costs and mortgage insurance.
On the other hand, your APR includes the interest rate plus all the other costs and fees associated with taking out your mortgage.
“When comparing mortgage interest rates, it’s important to compare [APRs],” says Toren. “Compare loan options from multiple lenders to determine which has the best overall interest rate and cost combination.”
Toren says that reviewing your options with your current lender makes a lot of sense. Having that connection already in place could impact your interest rate and possibly fees associated with your loan.
“In many cases, your current lender may have promotional offers in place to retain your business that a new lender would not,” says Toren. But always compare several options before making your final loan decision.
“ARMs are great for borrowers who don’t plan to stay in their home longer than the length of the ARM term or who may want to use the monthly interest savings from the ARM to pay down their mortgage and build equity more quickly,” says Toren.
On the other hand, ARMs are not right for everyone. “If you’re in your home for the long haul and aren’t comfortable with fluctuations in your interest rate, a fixed-rate mortgage may be your best bet,” says Toren. “The lack of certainty in ARMs can create anxiety for borrowers who worry they may later regret opting for an ARM.”
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