Before attempting to refinance any loan it will be important to know what average and current lending rates are. Finding loan refinance rates is quite simple as they are publicly available and constantly marketed by lending institutions. To get an idea of current refinance rates, view websites which post national average rates, such as Yahoo Finance. Keep in mind, the rates posted are generally for low-risk borrowers. So in regards to mortgage rates, the rates posted are for borrowers who have good credit scores and who want to borrow less than 80% of the purchase price. In today’s marketplace, 10% equity is required by most banks to refinance a mortgage.
After determining average rates, the most logical first step to finding refinance rates is to call your current lender or view their website. Most likely refinancing with your current lender will be the least time consuming route since they will have a large majority of needed information on file. In some cases, your current lender will offer the current rate without going through any underwriting process and may offer a discount on closing costs.
If your current lender is unable to refinance at a favorable rate, there are still many other lenders who may be willing to refinance. Websites such as Lending Tree will give a potential borrower up to 5 quotes from different lenders which include both mortgage rates and closing costs.
Before agreeing to refinance, one must consider whether the refinance is in their best financial interest. You must consider all closing costs that will be lumped into the overall cost of the refinance. In many situations lenders will require a fee, or “points”, of 1% to 2% of the borrowed amount just to give you the mortgage.
For simplicity, the best way to determine whether the refinance makes sense for the borrower is to take the following steps. First determine your monthly savings. For example, if a $200k mortgage borrower with a 6% interest loan can be refinanced into a 5% interest loan, their monthly payment based on 30 year amortization will reduce from $1,199/mo to $1,074/mo, a $125 per month savings. Assuming the same borrower will have to pay closing costs of $3,000, it will take 24 months ($3,000 / $125) for the borrower to break even on the refinance. So if the borrower plans to sell his home within 24 months, the refinance does not make sense for his.