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Mortgage refinance rates explained

Published On: September 2nd, 2022

First things first. You might be here because mortgage rates are lower than when you got a home loan, and you’re deciding whether you could save money by refinancing. This article explains when to refinance, some tips for doing so, how mortgage refinance rates come into play, and some other important information.

What is a refinance rate?

A refinance rate is simply the interest rate you get when you refinance an existing mortgage. To refinance a mortgage, someone takes out a new loan with better terms to pay off an existing loan. There are benefits to refinancing, such as saving on interest payments, lowering monthly payments, paying off the loan faster, increasing financial security, consolidating debts, or taking cash out for improvements.

This might seem daunting, but we’re here to help with the refinance process.

Refinance when mortgage rates are low

When mortgage rates are low, you may benefit from a refinance. By taking out a new loan with a lower interest rate, you could have lower monthly payments. Our local loan officers can answer specific questions. If you’re ready to see if this is a good time to refinance, contact us today.

6 tips for refinancing your mortgage

  1. Establish your goals for refinancing. There are many reasons you might refinance your mortgage. Depending on your goals, you might choose one type of refinance over another. For example, if you want lower monthly payments or to pay off the loan faster, you could choose a rate-and-term refinance. But, if your goal is to borrow cash from your home equity, a cash-out refinance might be the best bet.
  2. Know your credit score. Credit score is a major factor in determining your mortgage refinance rate. Generally, the higher the better. We go into more details on this a bit later in this article.
  3. Know your debt-to-income ratio (DTI). Ideally, your debts will be less than 36% of your monthly income. It’s still possible to qualify if your DTI is higher, but it might require a higher down payment or interest rate.
  4. Know your home equity. If you’re looking to do a cash-out refinance, you’ll need to know how much equity you have in the home because this will determine how much you can borrow. We can help you with this.
  5. Remember to consider closing costs. Your new mortgage might carry most of the same costs as your initial purchase mortgage. These fees may include appraisal fees, credit report fee, attorney’s fees, title search, insurance and recording fees, among other required fees.
  6. Prepare your home for the appraisal. Present your appraiser with a list of upgrades you’ve made to the house and receipts from contractors. Tidy up the interior and exterior so the home looks as good as possible, and make sure to be present during your appraisal. During the walk-through, your appraiser will likely make sketches or take photos, looking for safety code violations and anything that can alter a home’s value. The purpose of the appraiser’s report is to assess the property’s value, but it also includes details on a home’s general condition and a review of the surrounding area.

Is there a minimum credit score needed to refinance?

The higher your credit score, the better your chances of not only getting approved for a loan, but also getting appealing terms and a good mortgage rate.

In order to refinance with a Conventional loan at Guild, you need a credit score of 620 or higher and have a qualifying DTI. If you don’t meet these requirements, we offer FHA, USDA and VA loans that allow for credit scores as low as 540 and FHA loans that allow for credit scores as low as 540 or 580 depending on the program.

Is it worth it to refinance your mortgage?

There’s not a simple yes or no answer. We have a refinance calculator to help you get started. To calculate your refinancing results, we use information about your current home loan and details of the new loan to estimate potential savings. You can decide if refinancing will help you meet your financial goals. With this calculator, you’ll find an estimated new loan amount, new principal and interest payment, estimated closing cost, payment and “break-even” point.

What is a good refinance rate?

This is a good question for a licensed loan officer, because the answer depends on your current loan situation. Just because you might be able to get a lower interest rate doesn’t mean you should refinance. It’s important to calculate your break-even point and make sure you’re saving money.

How to get the best refinance rate

You have the best chance at getting a good refinance rate if you have a higher credit score, a low loan-to-value ratio, and a low debt-to-income ratio. Current mortgage rates are also a major factor. Reach out to a local loan officer to find out where you stand and what you can do to get the best rate.

The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction. *By refinancing an existing loan, total finance charges may be higher over the life of the loan. *Information is for general illustrative purposes only. The information is believed to be reliable, but Guild Mortgage does not warrant its completeness, timeliness or accuracy. Guild Mortgage assumes no responsibility for errors or omissions in the information provided. *Typically, a non-purchase second mortgage. **Please consult your financial advisor on the consolidation of short term debt into long term debt.

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