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What Factors Determine Your Refinance Mortgage Rate?

Updated on January 8, 2018
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Tamara Wilhite is a technical writer, industrial engineer, mother of 2, and a published sci-fi and horror author.


Refinance mortgage rates are paid by those seeking to refinance an existing mortgage, consolidate multiple mortgages or tap into home equity. What factors determine your refinance mortgage rates?

The value of the property affects the loan rate.
The value of the property affects the loan rate. | Source

Questions that Determine Your Mortgage Refinance Rate

  • Are you consolidating multiple loans into one mortgage?

Consolidating a first mortgage and a second mortgage or line of credit into one, large mortgage can save money by eliminating the higher interest rate charged on the second loan. You may also get discounted fees from the primary mortgage lender by giving them more business by rolling over the additional loans to the consolidated loan.

In general, loan consolidation only saves you money on the higher interest paid for the unsecured loans. You'll probably pay more for the consolidated loan than you would if you aggressively paid off the unsecured loans and left the primary mortgage loan alone.

  • What is the loan amount?

Jumbo loans will have a higher interest rate than smaller ones due to the greater burden the lender faces if you default.

  • Will you be eliminating Private Mortgage Insurance?

Private Mortgage Insurance or PMI is charged whenever the home owner has less than 20% equity. If the home value has increased, the new property assessment can be used to eliminate PMI, saving borrowers hundreds if not thousands of dollars a year.

  • What will the new loan term be?

Moving from a 30 year loan to a 15 year note will result in a lower interest rate, though the monthly payment may be somewhat higher. You can also apply for a 10 year note or 20 year mortgage, though fewer institutions offer loans at these intervals. Refinancing the current debt into a shorter term will always result in a lower interest rate but a higher payment.

  • What is your credit score and recent credit history?

While consolidating credit card debt into a home equity loan yields a lower interest rate, this also reduces the equity left in the house if the property is sold or foreclosed upon. Mortgage lenders are increasingly wary of offering their best interest rates to those moving unsecured debt to mortgage debt.

Personal events can drive someone to refinance their mortgage while hurting their credit. For example, refinancing a mortgage after divorce means that the lone name on the mortgage finance will be the only one considered in the credit review - and the person's credit score usually takes a hit after a divorce. Refinancing a home to lower the payments after a bankruptcy or extended period of unemployment may mean a higher interest rate, increased finance charges or both.

  • Is the mortgage balance increasing or decreasing?

You will pay a higher interest rate on a cash out mortgage refinance, where you are withdrawing equity, than if you are paying money down to decrease the mortgage balance.

Refinancing a home mortgage can save the borrower money by lowering the interest rate they pay each month. However, if someone is taking cash out of the home along with the mortgage rate refinancing, they will be charged a higher interest rate over someone who is simply refinancing the existing loan.

Those rolling credit card debt into the new mortgage or otherwise increasing the total debt secured by the house will see higher interest rates over those refinancing the current mortgage balance. Those who lack the cash to pay the loan refinancing charges will pay more, since these banking fees will be rolled into the new loan, increasing the principal balance.


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