Guest post by Bankrate:
Mortgage rates change all the time, driven by factors like the economy, Treasury bond rates and demand. Lenders nationwide provide weekday mortgage rates to our comprehensive national survey of the most current rates available. Bankrate posts the latest average marketplace rates for a wide variety of loans including purchase and refinance mortgages. The interest rate table linked here is updated daily. Use these as a guide to what’s available, but keep in mind your rate may vary depending on your qualifications and the lender you choose.
What are today's refinance rates?
On Wednesday, August 12, 2020, according to Bankrate’s latest survey of the nation’s largest refinance lenders, the benchmark 30-year fixed refinance rate is 3.110% with an APR of 3.310%. The average 15-year fixed refinance rate is 2.600% with an APR of 2.810%. The 5/1 adjustable-rate refinance (ARM) rate is 3.380% with an APR of 4.050%.
Why trust Bankrate?
Bankrate has been the authority in personal finance since it was founded in 1976 as the “Bank Rate Monitor,” a print publication for the banking industry. Bankrate has been surveying and collecting information on mortgage and refinance rates from the nation’s largest lenders for more than 30 years. Top publications such as The New York Times, Wall Street Journal, CNBC and others depend on Bankrate as a trusted source of financial information, so you know you’re getting information you can trust.
How Bankrate's mortgage and refinance rates are calculated
Here you can see the latest marketplace average rates for a wide variety of refinance loans. The interest rate table below is updated daily to give you the most current refinance rates when choosing a home loan. APRs and rates are based on no existing relationship or automatic payments. For these averages, the customer profile includes a 740 FICO score and a single family residence. To learn more, see understanding Bankrate's rate averages.
Is now a good time to refinance?
Mortgage rates are currently in the 3s, making it an excellent time for many borrowers to refinance. To figure out if you can save money by refinancing your mortgage, use Bankrate’s refinance calculator to crunch the numbers.
Keep in mind that refinancing can come with hefty closing costs, so be sure that the savings outweigh the refinancing price tag during the time you expect to own the home. Borrowers with excellent credit will get the most competitive interest rate, so check your credit score before you apply for a refinance. You might find that taking time to improve your credit will get you a better deal down the road.
Housing Hardship Index: Coronavirus recession crushes some state economies, spares others
The coronavirus recession has hammered the economies of some states while leaving others relatively unscathed. New Jersey and New York were suffering the most among U.S. states in June, according to the Bankrate Housing Hardship Index. In April and May, the tourism-dependent states of Nevada and Hawaii were hit the hardest by the recession. Our metric sums mortgage delinquencies and unemployment to show which states are enduring the most extreme slowdowns during the pandemic. New Jersey and New York, epicenters of the pandemic, ranked first and second.
Nevada and Hawaii ranked third and fifth, respectively, for June -- not because of large numbers of COVID-19 cases but because of the structure of their tourism-heavy economies. Massachusetts also struggled with the one-two punch of soaring unemployment and an increase in delinquencies.
Housing Hardship Index
In normal times, missing mortgage payments invites financial disaster. Borrowers who don’t make payments accrue fines and penalties and ultimately face foreclosure.
These aren’t normal times, however. Federal law requires lenders to extend generous payment relief terms to borrowers. Most homeowners can miss up to a year’s worth of payments with no negative effects on their credit scores, and without risking foreclosure.
What you can do
Tens of millions of Americans have lost income during the COVID-19 crisis. If you’re facing financial hardship, here are three steps to take: 1) Apply for forbearance. Most borrowers are eligible for payment-relief programs that allow you to miss payments for up to a year without penalties. Don’t stop making payments without checking in with your lender or servicer. 2) Consider refinancing. Mortgage rates are at record lows, allowing millions of borrowers to save money by locking in lower rates. One caveat: If you’ve been laid off or furloughed, qualifying for a new loan can be difficult. Another piece of advice: Mortgage closing costs can be steep, so do the math. 3) File for unemployment. The federal government offered $600-a-week unemployment benefits to workers affected by the crisis. That benefit ended July 31, but there’s a chance Congress will extend some version of enhanced benefits.
Finding the best refinance rate
The best way to get the lowest rate is to comparison shop. Start by checking out Bankrate’s rate tables to see what lenders are offering. Also, find out what kind of rate you can get from your bank or credit union. Some lenders will even waive certain fees for existing customers.
Be sure to compare APRs, not just interest rates. The APR (annual percentage rate) is the total cost of the loan, including everything from interest rate to administrative fees. This is how much you’ll actually pay; the interest rate is just one portion of your total cost. So, while some lenders might have higher interest rates, their fees could be lower making the APR lower than someone with a lower interest rate, or vice versa.
Bankrate's guide to mortgage refinance, by Jeff Ostrowski
How do refinance rates differ from mortgage purchase rates?
Refinance and purchase loans typically have the same rate. Borrowers might notice slightly higher refinance rates when they’re in demand. Experts don’t recommend trying to time the market, in other words waiting for rates to drop — as there are so many variables that can affect rates, making it difficult to accurately predict whether they’ll rise or fall.
If you find a rate that will save you money, then it’s a good idea to lock it in, so you don’t risk missing out if rates jump.
Types of refinancing
Rate and term refinance: A rate and term refinance lets you replace your existing mortgage with a new one that has a different rate, terms or both. Unless you make a lump sum payment toward your principal, it does not change how much you owe. With a rate and term refinance borrowers can reduce their interest rate, lower their monthly payments (by extending their loan) or shorten their term (which raises monthly payments) in order to pay off the loan faster. This can be a helpful option for people who have high-interest rates and qualify for a lower rate, thereby saving money each month and over the life of the loan.
Rate and term refinances are also useful products for those who want to change the terms of their loan. For example, if you need to reduce your monthly payments, you might be able to extend your loan, so your monthly payments are smaller but you pay off your loan in a longer amount of time. The opposite is true, too, if you want to pay off your loan faster, you can shorten the term and pay higher monthly payments. Of course, you can combine a rate change (presumably locking in a lower rate) with a term change (longer or shorter).
You can’t get cash out of your home equity with a rate and term refinance, to do that you would need to get a cash-out refinance.
Cash-out refinance: A cash-out refinance allows you to tap your equity by refinancing your mortgage. Because your withdrawing cash from your home’s value, the new mortgage will be higher. Lenders typically limit cash-out refinances to no more than 80 percent of your home’s value so that you still have some equity left in your home.
Sometimes lenders will also charge higher interest rates because the loan amount is increasing. Between a larger mortgage and higher interest rate, make sure you run the numbers before you go this route.
Streamline refinance: Streamline refinance is a product specifically for FHA-insured mortgages. The advantage of streamline refinancing is that there are minimal credit requirements and the loan processing is typically fast (because appraisals aren’t required and there are fewer asset and income verification requirements). A streamline refinance can also be less expensive than conventional refinancing. Some lenders offer streamline refinances with no upfront costs wherein the lender will pay some or all of the closing costs in exchange for a higher interest rate.
Basic requirements of a streamline refinance include the following:
Must be an FHA mortgage
All mortgage payments must be up to date
The refinance will benefit the borrower (i.e. save the borrower money).
Borrowers can’t get more than $500 out of the mortgage that will be refinanced
How much equity do I need to refinance?
Most lenders require that you have a minimum of 20 percent equity in your home to do a cash-out refinance.
Closing costs for refinancing
Closing costs for refinancing your mortgage can costs thousands of dollars, usually between 2 and 6 percent of the loan amount. They also vary depending on where you live, as origination and third-party fees can vary by city and state.
Can you negotiate refinance rates?
The short answer is yes, you can negotiate refinance rates. The APR (annual percentage rate) is the total cost of the loan, it includes everything from your interest rate to lender fees.
The interest rate you qualify for is based on a number of factors, including your FICO score and debt-to-income ratio. However, there are some lender fees that you can negotiate, such as application fees (which most lenders have done away with) and processing fees. You can also try to negotiate the origination fee, which is usually 1 percent of the loan. If you’re an existing customer of their bank, you might be able to get a discount.
Comparison shoppers can always ask their preferred lender to match a lower APR from another lender.
Which bank has the best refinance rates?
There is no one bank with the best refinance rates as rates can change frequently, by institution, for a number of reasons. So, while a certain lender might have the best rate one week it could fall to the bottom of the list the following week. To get the most accurate rate when you’re ready to apply for a refinance is to comparison shop on the day you’re ready to apply. You can start by looking at Bankrate’s rate tables, which are updated daily.
Is it worth it to refinance?
Refinancing can save borrowers money if they can lower their interest rate enough to make up for the closing costs, which can total 3 to 6 percent of the loan. Refinancing can also make sense if you need to reduce your monthly mortgage payments by taking out a new loan with a longer term.
Before you apply for a mortgage refinance, check your credit score. To get the most competitive interest rate, your credit score should be in the good or excellent range. If your FICO score is on the lower end of the spectrum, take some to improve it so that you can get the lowest rate available.
Use Bankrate’s mortgage refinance calculator to run the numbers for your specific mortgage rate and term, this will give you a clear picture of how much you can save by refinancing.
When should you refinance?
The best time to refinance is when rates dip low enough to save you money on your mortgage — which is different for everyone. Experts warn against “timing the market,” which is when borrowers wait for rates to drop lower than what they need to save money in hopes of scoring an even better deal. If you want to save money on your mortgage and the rates are low enough for you to do so, it’s smart to lock that rate. Waiting could end up costing you money if mortgage rates suddenly jump, which they can do without warning.
When should you not refinance?
Borrowers should hold off on refinancing if their FICO score is low or they’re unemployed, as lenders will verify your ability to repay the new mortgage. Refinance applications are much like mortgage purchase applications in that lenders will verify your employment and run your credit score to determine your creditworthiness.
If you want to change the term of your mortgage, but keep your interest rate you should check current interest rates first. If you have a low interest rate, you could risk losing it by refinancing. In that case, it might not be a good idea to refinance your home loan.
Getting ready to refinance
What you will need to refinance
In order to refinance, you’ll need to apply for a new mortgage. Lenders will typically verify employment and run a credit check. Be sure to have identification and other required paperwork available, such as appraisals, tax forms and proof of assets. Lender requirements vary, so talk to your lender about what sort of documentation you need to supply.
How to refinance
Start your mortgage refinance journey by shopping around for lenders with the lowest APRs. You’ll also want to find lenders you’re comfortable with. For example, would you like to work with your lender in person or is a completely online experience preferred? Talk to your bank to find out if existing customers qualify for refinance discounts. Once you’ve identified your lender, find out what paperwork you need. The faster you gather all the required documents, the faster the lender will be able to process your loan. Many lenders have remote technology in place, such as e-signatures and remote notarization.
This article originally appeared on Bankrate.com. To see the full article, click here.