Fri. Jan 22nd, 2021

Mortgage refinance rates are historically low, and many homeowners could save by refinancing to a lower mortgage rate. At the same time, mortgage lenders are less willing to take on risk because of market uncertainty prompted by the coronavirus.

Credit standards also may be tougher amid the COVID-19 crisis, but homeowners who qualify for refinancing can take advantage of not only savings but also the chance to tap home equity.

This guide can help you understand how mortgage refinancing works and how you can qualify with the right lender. What you’ll learn:

  • Are mortgage refinancing rates going down?
  • How does mortgage refinancing work?
  • How much does refinancing cost?

What Are the Best Mortgage Refinance Lenders of 2020?

Best for fair credit

Flagstar offers banking and lending products in every state. Borrowers can select from conventional or government-backed mortgages, such as FHA, VA and U.S. Department of Agriculture loans, and opt for adjustable-rate mortgages. Other choices include home equity loans and lines of credit.

Before You Apply

  • Mortgage types: ARMs, conventional, FHA, jumbo, refinance and USDA
  • Minimum FICO credit score: 600
  • Maximum loan amount: $3 million
  • Better Business Bureau rating: A+

Best Features

  • Provides a broad selection of mortgages and home equity loans

  • Offers some mortgages that don’t require a down payment

  • Allows borrowers to apply for loans online

See full profile

Best for bad credit

Carrington Mortgage Services makes a range of mortgages, including refinancing, available to borrowers nationwide. The company, which provides conventional and government-backed mortgages, has funded $22 billion in home loans since 2011.

Before You Apply

  • Mortgage types: ARMs, conventional, FHA, home equity loans and HELOCs, jumbo, refinance, USDA, and VA
  • Minimum FICO credit score: 500
  • Maximum loan amount: $2.5 million
  • Better Business Bureau rating: A+

Best Features

  • Accepts applicants with credit scores as low as 500

  • Offers conventional loans with down payments as low as 3%

See full profile

Best for product selection

Guild Mortgage, founded in 1960, specializes in home loans and serves borrowers nationwide. The lender’s full suite of products includes conventional and government-backed mortgages and home equity loans.

Before You Apply

  • Mortgage types: ARMs, conventional, FHA, jumbo, manufactured home, refinance, reverse, USDA and VA
  • Minimum FICO credit score: 600
  • Maximum loan amount: varies
  • Better Business Bureau rating: A+

Best Features

  • Receives strong customer service ratings from the Better Business Bureau

  • Offers a broad range of mortgage products

  • Provides special mortgage programs for first-time buyers and manufactured homebuyers

See full profile

Best for low APR

New American Funding is a national mortgage lender with a variety of home loan options. The lender has processed more than $27 billion in mortgages.

Before You Apply

  • Mortgage types: ARM, cash-out refinance, conventional, FHA, HELOCs, jumbo, reverse, USDA and VA
  • Minimum FICO credit score: 500
  • Maximum loan amount: $3 million
  • Better Business Bureau rating: A+

Best Features

  • Provides multiple mortgage options, including low and no down-payment loans

  • Offers fixed- or adjustable-rate mortgages

See full profile

Best for no down payment

Alliant Credit Union is a not-for-profit financial cooperative that serves customers in all states except Maryland. Borrowers can take out conventional, jumbo, refinance and home equity loans.

Before You Apply

  • Mortgage types: conventional, first-time homebuyer, HELOCs and refinance
  • Minimum FICO credit score: 620
  • Maximum loan amount: $2.5 million
  • Better Business Bureau rating: A+

Best Features

  • Issues no down-payment mortgages for first-time homebuyers with excellent credit

  • Offers mortgages to borrowers with FICO credit scores as low as 620

  • Allows a debt-to-income ratio of up to 50% for some loan programs

See full profile

Best for low costs

Chase, one of the nation’s largest banks, offers mortgage and refinance loans for qualified borrowers. Home equity loans and HELOCs are also available.

Before You Apply

  • Mortgage types offered: ARMs, conventional, FHA, jumbo, refinance and VA
  • Minimum FICO credit score: 620
  • Maximum loan amount: $3 million
  • Better Business Bureau rating: A+

Best Features

  • Accepts down payments as low as 3%

  • Receives high marks from the Better Business Bureau

See full profile

Best for fair credit

NBKC Bank is a Kansas City-based mortgage lender. It originates home loans in every state.

Lender Highlights

  • Mortgage types: ARMs, conventional, Department of Veterans Affairs, FHA, refinancing
  • Minimum FICO credit score: 620
  • Maximum loan amount: undisclosed
  • Better Business Bureau rating: A+

Best Features

  • Some fair-credit borrowers eligible

  • Simple online process for applicants

  • VA loans with no lender fees

See full profile

Best for low down payment

PNC Bank is one of the largest U.S. banks, serving more than 8 million customers in all 50 states. PNC offers most types of mortgages.

Before You Apply

  • Mortgage types: ARMs, conventional, FHA, first-time homebuyer program, home equity, HELOC, jumbo, refinance, USDA and VA
  • Minimum FICO credit score: undisclosed
  • Maximum loan amount: $5 million
  • Better Business Bureau rating: A+

Best Features

  • Offers multiple types of mortgages

  • Provides no or low down-payment mortgages

  • Supplies an online home ownership cost tool

See full profile

Best for large loan amounts

Bank of America serves roughly 66 million customers in all 50 states. The lender offers conventional, Federal Housing Administration, Department of Veterans Affairs and jumbo loans, as well as home equity lines of credit and mortgage refinancing.

Lender Highlights

  • Mortgage types: ARMs, conventional, FHA, first-time homebuyer program, home equity lines of credit, refinancing, VA
  • Minimum FICO credit score: 600
  • Maximum loan amount: $5 million
  • Better Business Bureau rating: A+

Best Features

  • Wide variety of mortgages

  • Annual percentage rate or closing cost discounts for qualifying Bank of America and Merrill Lynch clients

  • No closing costs and no annual, balance transfer and cash advance fees for HELOCs

See full profile

What Are Today’s Mortgage Rates?

Locking in a low mortgage rate today can save you thousands over the life of your loan. Compare your mortgage rate offers with national average trends.

Loan Types

This Week’s Rate

Last Week’s Rate

30-year fixed-rate mortgage 2.92% 2.95%
15-year fixed-rate mortgage 2.39% 2.45%
30-year fixed-rate jumbo mortgage 2.95% 3.01%
5/1 ARM 3.01% 3.03%
5/1 jumbo ARM 2.79% 2.81%

*Rates as of Dec. 4, 2020

U.S. News Survey: Ultralow Mortgage Rates Fuel a Refinancing Frenzy

Homeowners are rushing to refinance, hoping for lower interest rates, lower monthly payments or perhaps both, as mortgage rates hit historic lows.

With rates igniting a refinancing boom, U.S. News surveyed homeowners who have refinanced within the last six months to find out their goals and results. The survey revealed that many people refinanced to lock in low interest rates yet failed to properly shop around for the lowest rates.

Among the other key survey findings:

  • Record-low interest rates drove more than 75% of respondents to refinance.
  • Reducing interest rates and monthly payments were the main reasons cited for refinancing.
  • Most respondents didn’t cash out equity.
  • Fewer than a quarter of respondents said they adequately shopped for the lowest interest rates.

More than half of respondents refinanced to get lower interest rates; more than a quarter did so to reduce their monthly payments.

More than three-quarters of respondents said historically low interest rates were the main reason they decided to refinance.

Lowering total interest cost was important to 84% of respondents.

Most respondents didn’t refinance to tap equity, but about 14% did a cash-out refinance to pay for major expenses and nearly 6% to alleviate COVID-19 financial pressures.

Almost half of respondents had their home loans for five years or less before refinancing.

Refinancing resulted in lower monthly mortgage payments for 60% of respondents, and about 19% now have higher payments.

A lower monthly mortgage payment was important to about 70% of respondents.

About half of respondents didn’t change their mortgage terms, but more than 30% now have shorter repayment terms.

Although many homeowners refinanced to get lower interest rates, only 22% of respondents got rate quotes from at least three lenders.

  • U.S. News ran a nationwide survey in September and October 2020.
  • The survey sample came from the general American population, and the survey was configured to be representative of this sample.
  • The survey was screened to include homeowners who refinanced their mortgages within the last six months
  • The survey asked 10 questions related to refinancing a mortgage.

Are Mortgage Refinance Rates Going Down?

Mortgage rates have hit record lows as the coronavirus plunges the U.S. economy into a recession. Although rates could drop further still, you may want to lock in an interest rate now if you’re ready to refinance.

The best refinance rates may be available today. You could be gambling if you wait.

How Does Mortgage Refinancing Work?

A mortgage refinance replaces your original mortgage with a new one, ideally with a lower your interest rate. You’ll get a new interest rate and other loan terms, and you can make other changes to the loan, such as trading an adjustable-rate mortgage for a low fixed-rate mortgage.

The lender pays off your old home loan, and you will begin making payments on your new mortgage.

Generally, you can find three main loan types for mortgage refinance: rate-and-term refinance, cash-out refinance and cash-in refinance.

Rate-and-term refinance is the most common type of mortgage refinancing. You’ll take the balance of your original mortgage and borrow at a different rate and terms.

You should get a lower interest rate, and you can switch from an adjustable-rate loan to a fixed-rate loan, or vice versa. For example, you could refinance a 30-year adjustable-rate mortgage to a 15-year fixed-rate loan.

Cash-out refinance can offer a change of interest rate and other loan terms, but you’ll increase your balance with this type of mortgage refinance. This alternative to a home equity loan gives you cash at closing, which is added to your mortgage balance.

Cash-in refinance is less common than rate-and-term refinance or cash-out refinance. You’ll bring cash to the closing table to pay down your loan balance with this type of mortgage refinance. It’s an interest-saving option if you’ve got the cash to do it because this type of loan can offer a lower mortgage rate, shorter repayment term or both.

How Much Does Refinancing Cost?

Lenders will charge you a fee to refinance, just as they would for a brand-new mortgage loan. Expect to pay closing costs similar to your original mortgage, generally about 2% to 3% of the loan amount.

You’ll also owe lender fees, such as the origination fee, the discount points you pay for a lower interest rate, and the third-party fees for inspection and appraisal.

Before you refinance, make sure you do the math: For a $300,000 home loan refinance, plan to spend $6,000 to $9,000 on closing costs.

No-cost refinancing may be available, but if you think it sounds too good to be true, you’re probably right. You can bank on paying a higher interest rate or closing costs with this type of loan.

When Is Mortgage Refinance Worthwhile?

Mortgage refinancing makes sense when you can use it to save on interest, access home equity or both. Consider some of the reasons that people refinance a mortgage:

Lower interest rates are a popular reason for refinancing. Whether market mortgage rates have fallen or your financial picture has improved, you could save if you can qualify for a lower interest rate on your mortgage.

A lower mortgage refinance rate will reduce your monthly mortgage payment, as long as you do not borrow more money or shorten your loan term. In fact, a new loan with a lower rate might help you build equity in your home faster than you would with a higher interest rate.

Shorter loan terms, such as switching from a 30-year to a 15-year fixed-rate mortgage, can also offer interest savings and allow you to pay off your mortgage sooner.

If you get a lower mortgage rate, you could save on interest in two ways: by shortening the life of your loan and reducing the interest you pay each month.

Longer loan terms, such as a 30-year fixed-rate mortgage, will lower your monthly payment. Usually, a mortgage with a longer term will have a lower monthly payment than a mortgage with a shorter term. But the longer you take to pay off your loan, the more interest you will pay overall.

Converting from an adjustable-rate to a fixed-rate loan locks in your interest rate, preferably at a lower rate. You may want to do this if mortgage refinance rates are low and you plan to stay in your home for more than a few years.

Conversely, some homeowners who plan to move within a few years choose to switch from fixed-rate loans to adjustable-rate mortgages. Compared with a fixed-rate mortgage, an ARM could provide a lower rate for the first few years. That means big interest savings if you won’t live in your house for long.

Cash-out refinancing converts your home equity into cash that you can use to pay for home improvements or to pay off debts, such as a second mortgage or a high-interest credit card balance. But exercise caution with your home equity: Avoid using it to finance short-term expenses for what could amount to long-term debt.

Do You Qualify for Refinancing?

Approval for refinancing is slightly more complicated than regular mortgage approval – especially as lending standards tighten in the COVID-19 economy. You’ll need to prove your creditworthiness and income as you would with any other mortgage, but refinancing adds another layer: home equity.

Generally, home loan refinance lenders require a minimum credit score of 620 for standard loans. But you could qualify for refinancing with special programs such as government-backed loans if you have a lower credit score.

Before you apply for a refinance, put yourself in the best position to get a good interest rate and terms. Check your credit, and identify errors and areas for improvement. Pay down any balances and correct mistakes on your credit report.

You’ll also need sufficient income to qualify for your refinance. If your income has stayed the same or increased while your home loan balance decreased, you should have no problem with approval.

But if your pay has dropped during the pandemic, or you plan to add to your balance by taking a cash-out refinance or by combining a first and second mortgage, expect more scrutiny from your lender for approval.

Most lenders won’t approve a loan with a monthly mortgage payment that’s more than 30% of your total gross monthly income. For example, if you earn $5,000 per month, your monthly mortgage payment shouldn’t be more than $1,500.

Lenders assess your loan-to-value ratio to determine risk. LTV measures how much you owe on your home loan compared with your home’s market value. Typically, mortgage refinancing companies look for at least 20% home equity and an LTV ratio of up to 80%.

What’s the Best Way to Choose a Mortgage Refinance?

Picking the right lender is key. You can narrow down lenders based on mortgage products, interest rates and customer service ratings.

Choosing the best mortgage refinancing company starts with finding one that offers the refinancing product you want. Mortgage lenders offer a variety of refinancing loans, including:

  • 15-year fixed-rate mortgage refinance
  • 30-year fixed-rate mortgage refinance
  • Federal Housing Administration refinance
  • Department of Veterans Affairs refinance
  • U.S. Department of Agriculture refinance
  • Adjustable-rate mortgage refinance
  • Jumbo loan refinance

Once you find the right product, you can find the right price. Prequalify with a few mortgage refinance lenders to compare mortgage rates and find out whether you meet minimum credit score requirements.

Shopping around allows you to compare interest rates side by side. They may look similar, but even a fraction of a percentage point can lower your monthly mortgage payment and save you a lot of money over time, especially on a larger loan.

As you compare rates, be sure to look at the APR. The APR reflects the interest rate and other costs, and it represents the true annual cost of a loan.

Because mortgage refinancing is a long-term commitment, choose a lender that can offer good customer service. Read reviews, ratings and complaints to find out what other consumers have to say about a lender.

Check the Better Business Bureau to find mortgage lender ratings, and visit the Consumer Financial Protection Bureau’s Consumer Complaint Database to learn about common grievances. You can also consider your own experiences: You can refinance with your current mortgage company if you’re happy with its service and it offers competitive products.

When Is Refinancing Not a Good Idea?

A mortgage refinance is not the best decision for everyone. Here are some reasons you might want to stick with your loan:

  • You’ve had your mortgage for a long time. If you’ve had your loan for a long time – generally, at least 10 years for a 30-year loan – you reach a point where you’ve paid most of the interest and are building equity. When you refinance a loan, you restart the loan amortization process and revert to paying more interest than principal.
  • Your current mortgage has a significant prepayment penalty. Some lenders charge a prepayment penalty, which is a fee for paying off your loan early, even to refinance. If you refinance with your current mortgage company, you can request that this fee be waived. If the fee can’t be waived, factor that into your break-even calculations. You can find your break-even point – when your savings are equal to the costs of your new loan – by dividing your total closing costs by your monthly savings.
  • The fees outweigh the savings. If your objective is to obtain a lower monthly payment, the cost may be worth it. But if you want a lower interest rate to save money over time, you’ll only achieve your goal if you own the property long enough for the lower monthly payments to offset closing costs.
  • You plan to sell your home in the next few years. If you sell your home before you break even on the cost of a refinance, you could waste money by refinancing the loan. A break-even calculation will reveal how long you need to stay in your home to see savings on a refinance.

Advertising Disclosure: Some of the loan offers on this site are from companies
who are advertising clients of U.S. News. Advertising considerations may impact
where offers appear on the site but do not affect any editorial decisions,
such as which loan products we write about and how we evaluate them. This site
does not include all loan companies or all loan offers available in the marketplace.

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