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What Are Today’s Refinance Rates?
On Thursday, January 21, 2021 according to Bankrate’s latest survey of the nation’s largest mortgage lenders, the average 30-year fixed mortgage refinance rate is 2.930% with an APR of 3.150%. The average 15-year fixed mortgage refinance rate is 2.410% with an APR of 2.650%. The average 5/1 adjustable-rate mortgage (ARM) refinance rate is 3.040% with an APR of 4.050%.
Current Mortgage and Refinance Rates
|30-Year Fixed Rate||2.930%||3.150%|
|30-Year FHA Rate||2.540%||3.410%|
|30-Year VA Rate||3.020%||3.280%|
|30-Year Fixed Jumbo Rate||2.960%||3.030%|
|20-Year Fixed Rate||2.830%||3.100%|
|15-Year Fixed Rate||2.410%||2.650%|
|15-Year Fixed Jumbo Rate||2.420%||2.480%|
|5/1 ARM Rate||3.040%||4.050%|
|5/1 ARM Jumbo Rate||3.040%||4.010%|
|7/1 ARM Rate||2.980%||3.970%|
|7/1 ARM Jumbo Rate||3.070%||3.960%|
|10/1 ARM Rate||3.210%||4.010%|
|30-Year Fixed Rate||2.880%||3.180%|
|30-Year FHA Rate||2.640%||3.500%|
|30-Year VA Rate||3.130%||3.400%|
|30-Year Fixed Jumbo Rate||2.920%||3.030%|
|20-Year Fixed Rate||2.760%||3.080%|
|15-Year Fixed Rate||2.360%||2.700%|
|15-Year Fixed Jumbo Rate||2.380%||2.450%|
|5/1 ARM Rate||2.980%||3.990%|
|5/1 ARM Jumbo Rate||2.970%||3.930%|
|7/1 ARM Rate||2.910%||3.870%|
|7/1 ARM Jumbo Rate||2.990%||3.840%|
|10/1 ARM Rate||3.040%||3.930%|
Rates as of Thursday, January 21, 2021
These refinance rate averages are based on weekday mortgage rate information provided by national lenders to Bankrate.com. These marketplace average rates for a variety of refinance loan types are updated daily, though it is possible rates have changed since this was last updated.
Is Now a Good Time to Refinance?
Refinance rates are as low as they’ve been in years, so this can be an excellent time to refinance your mortgage — if you meet certain criteria. While it’s important to factor in the thousands of dollars you’ll pay in closing costs when you’re running the number, reducing your monthly payment and paying off your mortgage much sooner can make the short-term costs well worth it over time.
However, this isn’t the case for everyone, because the lowest interest rates are only available to those with the best credit. Not only that, but lenders have tightened their standards recently, and if you don’t have a secure source of income you may not be able to qualify for a refinance. So while this is an excellent time for many to consider a mortgage refinance, it doesn’t make sense for everyone.
How to Find the Best Refinance Rate
Shop around to find the best mortgage refinance rates—and know your personal financial situation will impact your rates. If you have a high credit score, you can qualify for the best refinance rates. The best way to improve your credit is to take a long-term approach by paying down debt and paying your bills on time.
You may also be able to get better refinances rates on shorter loans. So taking out a 10- or 15-year mortgage will save you on interest over the life of the loan compared to a 30-year refinance, though you’ll have higher monthly payments.
Mortgage interest rate vs. APR
When comparing offers, make sure you look at the difference between the interest rate and the annual percentage rate (APR). The interest rate is what you’ll pay on the principal loan, while the APR includes the interest rate, other mortgage fees, and some closing costs. When looking at APRs, ask the lender what fees are included in the APR calculation so you can be sure you’re making an apples-to-apples comparison.
NextAdvisor’s Mortgage Refinancing Guide
What is a mortgage refinance?
A mortgage refinance involves taking out a new loan to pay off your current mortgage.
Refinancing your mortgage can help you in a number of ways. The biggest is the potential to save money by lowering your monthly mortgage payment, locking in a lower interest rate, adjusting the length of your loan, or getting rid of private mortgage insurance. You also might want to refinance to cash out some of your home equity and pay for home renovations or other expenses.
The process is similar to taking out an original home mortgage, so you should prepare in the same way. Before you apply, research your best options and organize all the financial documents you’ll need. You’ll want to shop around for the best refinance rates and loan terms.
How are refinance rates different from mortgage purchase rates?
Refinance rates typically move in tandem with mortgage purchase rates. If purchase rates are increasing, you can expect refinance rates to increase as well — and vice versa. And your personal financial situation will impact refinance rates in the same way it affects mortgage purchase rates. So a high credit score is essential to getting a better rate.
But in many cases, refinance rates tend to be slightly higher than mortgage purchase rates. The type of refinance you are using will also affect your rate. A cash-out refinance is considered more risky and will usually have a higher interest rate. The amount of equity you have in your home also matters, more equity tends to lead to lower rates.
When should you refinance?
Whether or not you should refinance your existing home depends a lot on current refinance rates and how they compare to your existing mortgage. When you refinance, you can expect to pay 3%-6% of the new loan amount upfront in closing costs (or, that figure can be added directly to your new loan). With that in mind, crunch the numbers to ensure you’ll be saving over the life of the loan. If you aren’t planning on staying in your current home for the long term, then you may not have enough time to recoup the costs.
Refinancing is an opportunity to lower your monthly payment and create some room in your monthly budget. The best way to do this is by scoring a significantly lower interest rate. You could also create short-term savings by choosing a new loan with a longer term, such as trading a 15-year mortgage for a 30-year mortgage. In that case, the tradeoff is that you’ll end up paying more interest over the life of the loan. So you’ll have to balance your priorities.
What is a good refinance rate?
Mortgage refinance rates have been dropping since the COVID-19 pandemic began and have hit record lows dipping below 3% for the first time ever in August and September. A big factor impacting mortgage refinance rates has been the Federal Reserve’s desire to stimulate the economy with low interest rates. And it doesn’t look like interest rates will be increasing anytime soon, as the Federal Reserve has indicated it expects to keep interest rates low for years to come.
That’s good news if you’re hoping to refinance your mortgage, but you can expect refinance rates to creep up slightly starting in December 2020. This is when Fannie Mae and Freddie Mac will introduce a new Adverse Market Refinance Fee, which will apply to new mortgage refinances that meet their guidelines. While this fee is technically paid by the lender, the cost will likely be passed along to the borrower in the form of higher interest rates or fees.
Although average rates are extremely low, that doesn’t necessarily mean you’ll be able to qualify for a refinance rate of 3% or less. Lenders offer better refinance rates to borrowers with stronger financial profiles and credit scores.
Even if you can get the lowest advertised interest rate, you also need to pay attention to the annual percentage rate (APR), which factors in fees. You may get a low interest rate, but pay excessive origination fees or discount points. In that situation you could end up with a higher APR as the refinance could be more expensive than advertised. So take the time to compare mortgage lenders and be sure you’re getting the best overall deal.
Can you negotiate refinance rates?
Refinance rates aren’t exactly the kind of thing you can negotiate, but you can shop around. Getting loan estimates from 2-3 different lenders allows you to compare rates and fees against one another. Then you can negotiate for lower fees or a better rate.
Types of refinancing
Nearly all types of refinance loans fall under the “rate and term” category, which is simply when either the rate or repayment term on your mortgage is changed. Typically, you’re replacing your existing loan with one that has a more favorable interest rate or terms. A longer loan term will have smaller monthly payments, but you’ll pay more interest over the life of the loan. A shorter term loan will have a lower interest rate, but a higher monthly payment.
There are also other types of refinance loans that apply to specific situations.
A “cash-out” refinance is used to turn your home’s value into cash. For example, if you had a $50,000 mortgage and your home is worth $100,000, you could refinance for $80,000 and pocket the extra $30,000. This could give you an opportunity to make improvements that increase the value of your home, assuming you’re financially secure enough to take on the increased debt.
Another type of refinance is a “cash-in” refinance, where you can pay down your loan as part of the refinance to get a smaller monthly payment. Increasing your equity, or decreasing your principal balance relative to the value of your house, could also help you drop private mortgage insurance payments.
If you currently have a mortgage backed by the Federal Housing Administration (FHA) you could take advantage of the FHA Streamline Refinance program. This type of refinance functions like other refinancing options, but has different qualification standards. There’s no credit score minimum, income requirement, or home appraisal needed to qualify for the program. Instead, you need a history of on-time payments and the refinance must be beneficial for the homeowner, which typically means it will result in either lower payments or a shorter mortgage term.
Preparing to Refinance
Once you’ve found the best refinance rates and terms for your situation, it’s time to close on the loan. The process of refinancing is similar to getting a mortgage when you first purchase a home, so you’ll follow many of the same steps.
When you refinance a mortgage you will be on the hook for closing costs, but you won’t have to pay what is generally the biggest out-of-pocket expense on a mortgage – a down payment.
What will you need to refinance
Getting all your paperwork in order before submitting a refinance application is a good way to make the closing process go more smoothly. Your lender should have a checklist for you, and it will include documents such as:
- Proof of income: Your most recent pay stubs, W-2s, 1099s, or tax returns from up to the past two years are required to verify your income and employment status.
- Proof of assets: Gather your most recent statements for bank accounts, retirement plans, and other investments.
- Documentation of current debt: You will need account statements for your current home loan, credit cards, and any other loans you have, like student loans or auto loans.
- Appraisal: Just like when you got your original mortgage, the bank will require you to have an appraisal done on the property to verify its current value.
- Insurance: You will need proof of homeowners and title insurance.
You may also need additional documentation for any alimony or child support you receive or are required to pay. And if you have a large gap in employment or negative marks on your credit report, the lender may require a letter from you explaining those circumstances. Also, given the current economic environment, lenders are vetting applicants more closely. You should expect them to verify your employment up to the day of closing, and if closing takes longer than expected you may need to resubmit your most recent documentation.
How much equity do you need to refinance?
Having 20% equity in your home before you refinance your mortgage is ideal, although you can qualify with less equity. Having at least 20% equity will help you get the lowest refinance rates. The other advantage to having 20% equity is you will be able to avoid paying private mortgage insurance (PMI).
When calculating how much equity you’ll need to refinance, don’t forget to consider refinance closing costs. You can pay for closing costs out of pocket, but if you have enough equity you typically can roll them into the new loan. In that case it’s best to have enough equity to absorb the closing costs and still maintain 20% equity in the property.
Is It Worth It to Refinance?
Deciding to refinance your existing mortgage isn’t as straightforward as comparing the interest rates. You could refinance into a lower rate, but if you’re paying excessive upfront fees it could wipe out any potential savings.
So you need to look at the big picture when considering a mortgage refinance.
What is the average cost of a refinance?
When you refinance, you can expect to pay 2% to 5% of the new loan amount upfront in closing costs. With the average home value climbing north of $260,000, you could be looking at $5,000 to $13,000 in refinancing fees.
You can sometimes roll the refinance closing costs directly into your new mortgage so you’re not paying out of pocket. This type of loan is often advertised as a no-closing-cost refinance. This is a bit of a misnomer because you’ll end up paying the same fees (plus interest), but they’ll just be spread out over the life of your loan. Alternatively, the lender may offer you a credit to cover, or reduce, the closing costs, in exchange for a higher interest rate.
When should you refinance?
Whether refinance your existing home is a good idea depends on current refinance rates and how they compare to your existing mortgage. With the upfront closing costs in mind, crunch the numbers to ensure you’ll be saving over the life of the loan. If you aren’t planning on staying in your current home for the long term, then you may not have enough time to recoup the costs. Refinancing is an opportunity to lower your monthly payment and create some room in your monthly budget. The best way to do this is by securing a significantly lower interest rate. You could also create short-term savings by choosing a new loan with a longer term, such as trading a 15-year mortgage for a 30-year mortgage. In that case, the tradeoff is that you’ll end up paying more interest over the life of the loan. So you’ll have to balance your priorities.