When you refinance there are a lot of factors that are going to impact whether or not you save money on the refinance — one of which is the factor most people are aware of– the refinance rate. Although small this number is depicts a lot of market trends and can determine the flow of the real estate marketplace. As a homeowner, you know the rate you qualify for is going to have a direct impact on how much money you save, in interest, over the life of the loan. While the refinance rate has an impact there is a lot going on behind the scenes that many aren’t aware of. The following three reasons explain why it’s important that you compare refinance rates.
1. Economic Impact on Refinance Rates
A good place to start with understanding refinance rates is to determine the forces that drive them forward. It’s obvious that the rates are impacted by the marketplace and the marketplace is impacted by the rates, but how exactly does all of this work? A lot of factors sway mortgage rates and some of them are confusing. Still, getting an overview of the process is worth it and takes just a moment.
When interest rates fluctuate they tend to do so in a movement that parallels mortgage-backed securities (MBS). A mortgage backed security is an asset that is secured by a mortgage or multiple mortgages. You can follow them in the bond market. To put it in a very brief nutshell when MBS prices go up real estate mortgage rates go down, but when bond rates go up real estate rates go up. It can seem a bit convoluted. This diagram may make it easier:
The reason you would want to watch the bond and MBS trends is because they can help you determine what the trends may be for the interest rates coming up–which can help you decide when to refinance. Comparing refinance rates week to week is a good idea if you want to know what you may be able to qualify for. This isn’t an exact science and you’re not guaranteed good rates, but this is one way to keep yourself informed. It’s also important to realize that these fluctuations occur day to day and week to week, which is why comparing is so important. When rates constantly fluctuate you need to make sure you’re getting the best current refinance rate available.
2. Your Financial Impact on Refinance Rates
When you are in the process of getting a refinance you’ll be approaching lenders for quotes. To get these quotes you’ll have to give them a bit of your financial information, including your credit score and work history. Each lender is going to give you a quote based off of your financial situation and in relation to the base terms they offer. This means that each quote you get will probably be different since the base for each lender is going to vary. If you compare refinance rates from all these lenders you’ll be able to get a pretty decent idea of what you are actually able to qualify for.
3. Negotiations and Your Refinance Rates
Negotiations are the third reason you should compare refinance rates. If you get multiple quotes all from different lenders you’ll be in a position to really look at the lenders and then determine which one most closely fits your needs. Once you’ve gotten a clear idea of what terms and rates are available you’ll then have a base that you can build on to get the terms adjusted for your needs. Oftentimes in negotiations the closing costs and fees are reduced which really helps the homeowner. So choose your lender, get clear on your requirements, and start negotiating. During the negotiations you and the lender each work from your base point until the terms agreed on are acceptable to both of you.
The Sum Total
As mentioned above there are many factors that come into play that can and will affect the refinance rates you are given. As a homeowner you can weigh the odds in your favor if you take the time to really learn about the marketplace and why rates do what they do–you will be impacted financially by the trends the minute you decide to refinance. When comparing refinance rates you are adding another level of security to your refinance. These three steps are simple ways for you to keep yourself informed and aware of market trends in relation to your finances. After implementing this simple strategy you’ll be better equipped to get the refinance you need.