Sadly, those rock bottom refinance rates from 2020 and 2021 are long gone. Even so, refinancing your mortgage could still make sense if you want to switch to a shorter-term loan or need to tap into your home equity.
If you’re ready to refinance your mortgage, here’s how rates are trending and how to get the best rate on your home loan.
Inside this article
Current mortgage refinance rates
As of December 16, the average annual percentage rate (APR) for a 30-year refinance rate is 6.51%. This is down only slightly from 6.53% the week before.
The average rate of a 15-year mortgage refinance is 5.91%, exactly the same rate as the week prior.
While fixed rates are showing signs of cooling, adjustable-rate mortgages (ARMs) may offer a more affordable option. The average 5/1 ARM refinance rate is currently 5.23%, down slightly from 5.29% the week before.
What the experts are saying about mortgage refi rates
In its battle against high inflation, the Federal Reserve plans to forge ahead with its tightening policy into 2023, which will continue to indirectly impact fixed-rate refinance loans. While yields on Treasury bonds have a direct impact on mortgage rates, the Fed’s monetary actions and inflation have an indirect influence.
As a result, many experts predict that mortgage rates will stay elevated in 2023. For instance, Freddie Mac forecasts rates will remain above 6%, dropping from the average rate of 6.8% in the fourth quarter of 2022 to 6.2% in the final quarter of 2023.
On the other hand, some experts have a more rosy outlook.
“Based on what I’m seeing in the market in terms of curbing inflation, I would suspect that in the spring of 2023, rates will decrease to [the] 4.5% to 5.25% range,” says Stephen Rinaldi, president of Rinaldi Group LLC.
How to get the best mortgage refinance rate
If you plan to refinance, Carol Toren, senior vice president and head of consumer direct lending at Flagstar Bank, advises borrowers to consider various factors to secure the best rate.
“Loan term, loan amount, loan-to-value ratio and loan product are key,” says Toren. “For example, you'll typically pay a lower interest rate on a 15-year mortgage than you would for a 30-year fixed-rate loan, and all other things being equal, the less you refinance, the less costly your refi will be.”
Here are five steps to get the best mortgage rate:
Get familiar with your credit score. A stronger credit score can go a long way to reducing rates—improving your credit by even a few points can make a difference. Before you apply, check your credit report to make sure it doesn’t contain any errors. If it does, removing these from your history could help lift your score. Other potential ways to improve your credit include paying all of your bills on time and repaying debt.
Compare multiple lenders. Don’t go with the offer of the first lender you see. Make it your mission to get quotes from several lenders. Comparing different lenders’ rates, fees and other loan features could save you money in the long run.
Increase your down payment. The lower your loan-to-value (LTV) ratio—the amount you owe on your mortgage divided by your home’s appraised value—the better your chance of getting a lower rate. Lenders generally view loans at or near the appraised value of a home as a higher risk. An LTV ratio above 80% is usually considered high, so it’s a good idea to start saving for at least a 20% down payment to avoid greater overall costs.
Choose a shorter term. Typically, the shorter the loan term, the lower the interest rate. However, the downside of shorter-term loans is that the monthly payments are higher, so review your total monthly debt obligations and income first to see if you can manage to pay more each month.
Ask lenders about “buying down” your rate. Most lenders give borrowers the option to “buy down” their rate through discount points. One point equals 1% of your loan and typically reduces your rate by 0.25%. So for example, if your refinance balance is $300,000 at 5.75% interest and you buy one point, you could pay $3,000 at closing to buy down to a 5.50% rate. Make sure to do the math beforehand to determine if you’ll be in the home long enough to recoup the cost.