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As a homeowner, there are a few scenarios where refinancing a home loan can make sense. Chief among them is to reduce the interest rate on your mortgage and make your home more affordable. Other common reasons for refinancing are to change your loan terms or to use a cash-out refinance to take equity out of your home. Here's what today's mortgage refinance rates look like.
These four steps can be the best tools to get you a good deal on a refinancing mortgage:
The most influential factor in your refinancing mortgage rate is the current interest rate climate. For example, the average 30-year mortgage rate increased from about 3% at the beginning of 2022 to about 7%, as of March 2024. Even if you have perfect credit and take other prudent steps to get the best rate, your refinancing rates will be significantly higher than they were a few years ago.
One of the biggest mistakes homeowners make when refinancing is simply obtaining one rate quote and accepting it if it sounds reasonable. Let's be clear: by doing this, you could end up paying thousands of dollars more in interest than you need to.
So, at a bare minimum, you should obtain two or three definitive rate quotes. Here are the basic steps:
It's also worth noting that you shouldn't worry about multiple mortgage applications hurting your credit score. There's a special rule in the FICO credit scoring formula that counts any number of mortgage applications within a short period of time as just a single credit inquiry. This means that even if you apply with 10 different refinancing lenders, all of which conduct a hard credit pull, it would have the exact same impact on your credit score as if you had applied with just one.
While a rate lock can be great protection from rising interest rates, it can also be a negative if rates fall before you're set to close. Unless your rate lock has a provision called a "float-down option," you can't change your rate to a lower one.
A rate lock is a feature that allows you to ensure that the rate you're approved for stays the same until you close on your loan. Lenders typically allow you to lock in your rate for 15 to 60 days, depending on the circumstances.
For example, let's say that you are approved for a 6.5% APR on a refinancing mortgage and that after the appraisal and other closing processes, it takes you three weeks until the loan is closed. What happens if during those three weeks, mortgage rates rise by 0.5%? A rate lock ensures that you'll still pay 6.5%.
To be sure, every situation is different. But especially in times (like 2024) when rates are widely expected to trend downward, it's important to know what happens if rates start to go down after approval.
The obvious effect of your refinancing mortgage rate is that your monthly payment will be lower if your interest rate is lower. But there's more to refinancing.
Specifically, refinancing costs money. Just like when you get a mortgage to buy a home, there are closing costs involved with refinancing. And you need to make sure that the savings on your monthly mortgage payments make the costs of refinancing worthwhile. So, a lower mortgage rate can potentially make the difference between refinancing being worthwhile or not.
The simple definition of a mortgage rate is the price you pay for borrowing money to buy or refinance a home.
There are two types of mortgage rates you should know about when applying to refinance your mortgage. First, the interest rate is simply the charge for borrowing money, expressed as an annual percentage of your outstanding balance. If you borrow $200,000 at a 5% interest rate, interest will initially accumulate at the rate of $10,000 per year.
Additionally, and perhaps most importantly, is the annual percentage rate (APR). This includes the interest you pay, plus certain upfront costs like lender fees. It is the better indicator of the complete cost of borrowing money.
Refinancing your mortgage could save you hundreds of dollars for your monthly mortgage payment and secure you tens of thousands of dollars in long-term savings. Our experts have reviewed the most popular mortgage refinance companies to find the best options. Some of our experts have even used these lenders themselves to cut their costs.
It's essential to shop around to find the best refinance rates. You may find that different lenders have offers that vary widely.
Yes. Homeowners can refinance as often as they'd like, but some lenders may have specific restrictions.
It depends. While there are ebbs and flows in refinancing rates throughout the year due to seasonality, it's best to shop around when the time is right for you.
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