How to Get the Best Refinance Rates
Refinancing is all about saving money, and a great interest rate is the key to a loan with long-term benefits. To get the best refinancing rates, prepare for the application process and then shop around. With several offers in-hand, you’ll know which loan to choose, and you can move forward confidently.
Interest rates are still quite low, historically speaking. The most recent Mortgage Bankers Association (MBA) survey paints a picture of the current market, showing average reported rates along with the points required to get those rates.
30-year fixed (conforming)
30-year fixed (FHA)
30-year fixed (jumbo)
The MBA survey includes data from 75 percent of mortgage applications, and it’s a good start for ballpark rates. But those quotes don’t necessarily tell you what you can get—they’re for different borrowers and different properties. The only way to find the best refinance rates available to you is to submit applications. If you have great credit, strong income, and plenty of equity, you might be able to do better than the rates above.
Shop Around for the Best Refinance Rates
Sometimes shopping is fun, but that’s rarely the case when it comes to mortgages. Still, you need to get multiple quotes from multiple sources to get the best refinance rates. Ask each lender for a loan estimate, which is the official document they’re required to honor.
Three quotes should be enough.
Start with your existing lender, visit a local bank or credit union, and check with independent loan originators. Yes, it’s a pain to go through the process with each of them, but you stand to save thousands of dollars over the next several years. At least one lender should be eager to compete for your business.
You'll learn a lot during the process, and you'll get a feel for which lender is the best option for refinancing.
Shopping around is essential. Advertisements and national averages can get you started, but you won’t know what’s truly available to you until you discuss details such as your credit, income, and equity.
Prepare Your Finances
To refinance into the best rates available, take steps to improve your borrower profile. You can get started before you fill out an application.
Spruce up your credit: Get a free credit report and review your credit history.
- Fix any errors that may prevent you from getting approved for the best programs available. You want to get the rate you deserve.
- Keep credit card balances low, even if you pay them off completely every month. Depending on when lenders pull your credit, a high balance can hurt your chances of getting the best rate.
Minimize your debt:
- Pay down balances on loans—including credit cards—and pay off other loans like auto loans and personal loans, if possible. This will reduce the amount you owe to other creditors each month and improve your debt-to-income ratio. Better ratios mean better rates.
- Avoid major purchases. A new loan to buy a car (or anything else) will hurt your income calculations and your credit.
Maximize home equity: It’s possible to refinance with equity in the single-digits, and some government programs allow refinancing with negative equity. But the best rates and loan programs are available for borrowers with more equity. Bringing your equity up to 20 percent or more will broaden the options available to you and make it easier to qualify for programs like jumbo loans. As a bonus, you won’t need to pay for mortgage insurance. If you have cash available, ask your lender if paying down your mortgage might help you get better rates.
Loans With the Lowest Rates
Your credit scores and ratios affect your ability to refinance. But if getting the best interest rate is your primary goal, you can use loan options that further lower your rates.
Try shorter terms: The classic 30-year fixed-rate mortgage keeps payments low.
But shorter-term loans typically have lower rates, even though they result in higher monthly payments.
- 15-year loans: From the MBA survey above, the 15-year rate is 0.6 percent lower than the 30-year rate. The combination of a shorter repayment period and a lower rate can result in significant interest savings over your lifetime.
- Adjustable-rate mortgages (ARMs): You can get even lower refinance rates with an ARM. But if rates rise, your mortgage rate can go with them, and you’d face higher monthly payments and increased interest costs.
Consider government programs: Interest rates are tied to risk—less risk for lenders translates into a lower rate for you. Government-backed loan programs protect lenders, so they can be especially helpful if you have issues in your credit history or relatively little equity. You might not get the lowest interest rates when you refinance with a government loan, but you’re more likely to get approved, and the rate might be better than what’s available with conventional loans.
Pay your own way: It’s tempting to choose loans with the lowest closing costs (or no closing costs). But those loans aren’t free—paying closing costs out-of-pocket allows you to minimize your rate and your loan balance. The result? You’ll spend less on interest in the years to come. You can even pay optional discount points to further lower your rate—ask your lender what your options are. The longer you plan to keep your loan, the more sense it makes to pay out-of-pocket.