Refinancing your mortgage can reduce your monthly payment and save you money in the long term, especially if you can qualify for a lower interest rate. Before you make a move, though, do your homework.
This guide to mortgage refinancing will explain how the process works, how to decide whether it is right for you and how to choose a lender. U.S. News has selected some of the Best Mortgage Lenders for Refinancing to start your search.
|
||||
|
||||
Homefinity launched in 2018 as the online lending division of Fairway Independent Mortgage. It offers a variety of mortgage products, including conventional mortgages, Federal Housing Administration and Veterans Affairs mortgages, and mortgage refinancing.
Caliber Home Loans of Coppell, Texas, offers mortgage products nationwide. Options include conventional, adjustable-rate, jumbo, refinancing, Federal Housing Administration, U.S. Department of Agriculture and Department of Veterans Affairs loans. Caliber has been in business since 2008, and is solely focused on home lending products.
Carrington Mortgage Services, founded in 2007, offers an array of mortgage and refinancing options to borrowers seeking conventional or government-backed loans. Its California-based parent company, Carrington Holding Co., was established in 2003 and provides a range of real estate services. Carrington Mortgage Services is based in California and also has offices in Arizona, Connecticut, Florida, Indiana and Maryland.
Pentagon Federal Credit Union, widely known as PenFed, offers borrowers access to many types of mortgages: conventional, adjustable rate, jumbo and Department of Veterans Affairs, plus refinancing loans and home equity lines of credit. The financial institution, which serves 2.5 million members, was established in 1935 and is based in McLean, Virginia.
North American Savings Bank, or NASB, is a Missouri-based bank and lender founded in 1927 that offers home mortgages nationally. NASB provides a variety of mortgage options, including conventional, Federal Housing Administration and Department of Veterans Affairs loans, and products for borrowers who might otherwise have trouble getting a mortgage.
Headquartered in Charlotte, North Carolina, Truist Bank was formed in 2019 after SunTrust and BB&T banks merged. Truist Bank offers a variety of mortgage products, including refinancing and home equity lines of credit.
Chase, one of the world’s largest banks, was founded in 1799 in New York and offers mortgage and refinance loans.
AmeriSave Mortgage Corp. is an online lender that has been in business since 2002. It was one of the first to offer an offsite digital mortgage experience for customers. The company says it has financed more than 664,000 borrowers since it began operating. With headquarters in Atlanta, AmeriSave services loans in 49 states and Washington, D.C.
Simmons Bank was founded in Arkansas in 1903 and can now be found across six states. It offers mortgage products such as conventional and jumbo loans, federal-government-backed loans and state-approved down payment assistance programs.
The average 30-year fixed mortgage rate was 6.9% this week, down slightly from 6.94 last week. Still, interest rates are twice as high as they were at the beginning of the year, and higher borrowing costs are having a tangible impact on mortgage affordability and consumer housing sentiment.
Mortgage rates are mostly down over the past week. Here are the current mortgage interest rates, without discount points unless otherwise noted, as of Nov. 24:
- 30-year fixed: 6.9% (down from 6.94% a week ago).
- 20-year fixed: 6.79% (up from 6.77% a week ago).
- 15-year fixed: 6.23% (down from 6.27% a week ago).
- 10-year fixed: 6.32% (down from 6.37% a week ago).
- 5/1 ARM: 5.46% (down from 5.56% a week ago).
- 7/1 ARM: 5.59% (down from 5.69% a week ago).
- 10/1 ARM: 5.92% (up from 5.86% a week ago).
- 30-year jumbo loans: 6.91% (equivalent to 6.91% a week ago).
- 30-year FHA loans: 6.14% with 0.07 point (up from 6.1% a week ago).
- VA purchase loans: 6.29% with 0.05 point (up from 6.23% a week ago).
U.S. News Survey
U.S. News Survey: Ultralow Mortgage Rates Fuel a Refinancing Frenzy in 2020
In 2020, homeowners rushed 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 in fall 2020 surveyed homeowners who refinanced within the previous 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.
Additional Survey Insights
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.
U.S. News Survey Methodology
- 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.
Survey Results
A mortgage refinance replaces your original mortgage with a new one, ideally with a lower 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 fixed-rate mortgage.
Mortgage refinancing makes sense when you can use it to save on interest, access home equity or both. Consider some reasons people refinance a mortgage:
- Pay off your loan faster. If you shorten your loan term, such as switching from a 30- to a 15-year mortgage, you will build equity and pay off your loan faster.
- Save on interest. Even if you don’t shorten your loan term, a lower interest rate could save you money over the life of the loan.
- Reduce your monthly payment by extending your loan term. 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.
- Convert equity into cash. If you have enough equity, you can take out some in cash and replace your mortgage with a new one that may have new terms.
- Secure a predictable payment. Switching from an adjustable-rate mortgage to a fixed-rate loan locks in your interest rate, preferably at a lower rate. Alternatively, you could switch to an ARM for savings in the first few years of a mortgage if you know you won’t live in your home for long.
Reasons to think twice before refinancing:
- You’ll have to pay closing costs. Your potential interest rate savings may be offset by closing costs when you refinance your mortgage.
- You may pay more over time. If you refinance into a new mortgage of the same term, say a 30-year loan, you are essentially restarting the clock on your debt.
- You’re taking on more debt. With a cash-out mortgage refinance, you are adding to your total debt balance to tap into your home’s equity.
- You may be charged a prepayment penalty. Some mortgage lenders charge prepayment penalties to borrowers who repay their loan before the term ends.
- Your payment could increase. If you refinance from a 30- to a 15-year loan, you will likely see your monthly payment jump.
Here are some common types of mortgage refinance loans:
- Rate-and-term refinance. The most common type of mortgage refinancing allows you to take the balance of your original mortgage and borrow at a different rate, ideally a lower one, and terms.
- Cash-out refinance. This option lets you take advantage of the equity in your home, replacing your mortgage with a new, larger loan and giving you cash at closing.
- Cash-in refinance. Borrowers make a lump-sum payment at closing to build up home equity and qualify to refinance for better mortgage rates and terms.
- Streamline refinance. Qualified homeowners with a mortgage through the Federal Housing Administration, Department of Veterans Affairs or Department of Agriculture may be eligible for more affordable terms if they refinance through these government programs.
- No-closing-cost refinance. Your lender won’t charge you closing costs upfront but will roll them into your principal balance or raise your mortgage rate to cover the fees.
Credit score. Generally, home loan refinance lenders require a minimum credit score of 620 for conventional loans. But you could qualify for refinancing with special programs, such as government-backed loans, if you have a lower credit score.
Debt-to-income ratio. 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. Lenders generally won’t approve a loan with a monthly mortgage payment that’s more than 28% of your total gross monthly income, but there may be exceptions.
Loan-to-value ratio. 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%.
Expect to pay closing costs on a refinance similar to your original mortgage, generally about 2% to 5% of the loan amount. Charges may include lender fees, such as the origination fee, and third-party fees for inspection and appraisal.
On average, homeowners pay around $5,000 to refinance a mortgage, according to Freddie Mac. Before you refinance, use a mortgage refinance calculator to make sure your interest savings can offset your closing costs.
- You could save money now and over time. One of the primary goals of refinancing is to lock in a lower mortgage rate. By doing so, you will typically be able to reduce your monthly mortgage payments and save money on interest charges over the life of the loan.
- You may pay off your mortgage faster. You may choose to shorten your repayment term, such as refinancing a 30-year mortgage into a 15-year mortgage. This helps you get out of debt faster and save a substantial amount of money over time.
- You can lock in a fixed interest rate. Refinancing from an adjustable-rate mortgage to a fixed-rate mortgage eliminates the risk that your interest rate – and monthly payments – will change at the end of your fixed period.
- You can access your home’s equity. A cash-out refinance allows you to tap into your home’s equity, which you can use to meet other financial goals, such as renovating your house or paying off higher-interest debt.
- You may be eligible to eliminate PMI. Once you’ve hit a loan-to-value ratio of 80% or less, you may consider refinancing to get rid of private mortgage insurance.
Select the best lender to refinance your mortgage by evaluating product options, interest rates and customer service ratings.
Product options: Look for a company that offers the type of loan you want, whether that’s a 15- or 30-year fixed-rate mortgage; an FHA, VA or USDA loan; an adjustable-rate mortgage; or a jumbo loan.
Mortgage refinance rates: Once you find the right product, you can start shopping for the right price. Prequalify with a few lenders to find out whether you meet the minimum credit criteria and compare mortgage rates. Compare annual percentage rates, which reflect interest and fees, for the true cost of borrowing.
Customer service: Read reviews, ratings and complaints to check that a company can offer good customer service. Check Better Business Bureau ratings and search the Consumer Financial Protection Bureau’s Consumer Complaint Database for common grievances about lenders.
When you’re ready to refinance your mortgage, start by making sure you have a clear goal, whether it is reducing your monthly payment or pulling out equity for home repairs. Next, check your credit score to see whether it is in the ballpark to qualify for the type of loan you want. The final steps are comparison shopping by getting preapproved, gathering documents and applying, preparing for appraisal, and getting your cash for closing if needed.
- Mortgage recasting. A mortgage recast is when you put a large lump-sum payment toward your principal balance, which allows your lender to update your monthly payment for a fee.
- Loan modification. You may be able to extend your repayment term, reduce your interest rate or switch from an ARM to a fixed-rate loan through your current lender without going through the refinancing process.
- Home equity loan or line of credit. If you’re looking to tap into your home’s equity, you should also consider alternatives such as a HELOC or home equity loan.
The lender pays off your old home loan, and you begin making payments on your new mortgage.
To refinance your home, you’ll need to prove your creditworthiness and income as you would with any other mortgage. But refinancing adds another layer: home equity.
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 can refinance with your current mortgage company if you’re happy with its service and it offers a competitive interest rate. It’s still important to make sure you thoroughly understand the terms of your new mortgage before you sign, though; just because you’ve had a good experience with your first mortgage through a certain lender doesn’t mean you shouldn’t research other options.
Technically, there’s no legal limit to the number of times you can refinance your mortgage, but lenders may have restrictions on how often you can refinance within a short period of time. Keep in mind the costs associated with refinancing.
U.S. News selects the Best Loan Companies by evaluating affordability, borrower eligibility criteria and customer service. Those with the highest overall scores are considered the best lenders.
To calculate each score, we use data about the lender and its loan offerings, giving greater weight to factors that matter most to borrowers. For mortgage lenders, we take into account each company’s customer service ratings, interest rates, loan product availability, minimum down payment, minimum FICO score and online features.
The weight each scoring factor receives is based on a nationwide survey on what borrowers look for in a lender.
To receive a rating, lenders must offer qualifying loans nationwide and have a good reputation within the industry. Read more about our methodology.
Veterans United Home Loans offers mortgages in all 50 states and Washington, D.C., and specializes in Department of Veterans Affairs loans. Since 2016, Veterans United Home Loans has generated the largest number of VA purchase loans per year in the nation. The lender was founded in 2002 and is based in Columbia, Missouri.
PNC Bank is one of the largest banks in the United States, serving more than 9 million customers in all 50 states. A full-service mortgage lender, PNC offers most mortgage loan product types.
PrimeLending is a Dallas-based mortgage lender in operation since 1986. The company offers several mortgage loan options, including conventional loans, jumbo loans, government-backed loans and refinance loans. The lender is a subsidiary of PlainsCapital Bank.
Real Genius is a division of FirstBank, a publicly traded bank based in Nashville, Tennessee. Real Genius, formerly known as ConsumerDirect Mortgage, offers both home purchase and refinance loans.
New American Funding is a mortgage lender offering a variety of home loan options to homebuyers and homeowners nationwide except for Hawaii. The company, founded in 2003 and based in Tustin, California, has originated $61.9 billion in mortgages to date.
Guild Mortgage is a San Diego-based lender established in 1960 and focused on residential home loans. Guild Mortgage offers buyers in 43 states a full suite of mortgage products, including conventional loans, government-backed mortgages and jumbo loans.
SoFi is an online lender founded in 2011 and headquartered in San Francisco that offers fixed-rate mortgages. Refinance, jumbo and home equity loans are also available.
CMG Financial is a privately held mortgage banking firm operating nationwide with localized support, founded in 1993 and based in San Ramon, California. The lender offers a range of products, including conventional, government and specialty mortgages, like jumbo loans.
Founded in 1990 and headquartered in Mount Laurel, New Jersey, Freedom Mortgage is a full-service mortgage company. It’s the fifth-largest mortgage provider in the country and is licensed to operate in all 50 states. Freedom Mortgage offers a variety of mortgage options, including conventional loans, refinancing and first-time homebuyer friendly programs such as FHA loans.
LoanDepot is a mortgage lender that operates nationally with more than 200 branches and delivers both a digital experience and face-to-face service. The lender offers fixed- and adjustable-rate conventional mortgages, Federal Housing Administration and Department of Veterans Affairs loans, as well as refinance and renovation loans. The company was founded in 2010 and is based in Foothill Ranch, California.
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.
