How To Compare Mortgage Refinance Rates

As a homeowner with an outstanding mortgage balance, you might stand to gain from refinancing. With relatively low rates and uncertain times, finding a way to lower your monthly mortgage payment could be great idea.

But how does mortgage refinancing work and how do you sort through all the lenders to find the right loan for you? In today's article, we'll walk you through how to compare mortgage refinance rates right now.

This article is in partnership with Credit Karma Home. If you’re looking for a quick and easy way to shop rates and see if you can save on your mortgage, check out Credit Karma Home here >>

Are Mortgage Rates Still Attractive?

Although mortgage rates have risen a bit in 2022, that doesn’t mean they aren’t attractive. Homeowners can still take advantage low rates to reduce their monthly payments and/or reduce their payment term to pay off their mortgage faster.

The Federal Reserve Economic Data (FRED) graph below shows that mortgage rates are still near all-time lows (currently at 3.00%). 

And while rates have come back up a bit from their January 2021 lows, they're still lower than they were at this same time in 2020.

Unfortunately, rock-bottom rates might not stick around for too long. According to Freddie Mac, the recovering economy may lead to higher mortgage rates in the coming months. 

How Does Mortgage Refinancing Work?

A mortgage refinance replaces your existing mortgage with an entirely new one. When you take out the refinanced mortgage, the funds will be used to pay off the outstanding balance on your current mortgage.

When you're looking to refinance your mortgage, there are two main loan products available: rate and term refinancing and cash-out refinancing. Here's how both options work.

Rate And Term Refinance

The rate and term refinance option is likely what comes to mind when you think of refinancing. In this case, you would borrow the balance of your outstanding mortgage. The new lender will offer you different rates and terms based on the current interest rate environment, your credit score, debt-to-income ratio, and other factors.

If you're able to receive an offer for a new mortgage at a lower interest rate, you stand to lower your monthly payments while also saving money on interest charges over the lifetime of your loan. Additionally, you can choose a term that creates the appropriate monthly payment for your budget.

When shopping for a mortgage refinance, sites like Credit Karma Home make it easy to see different mortgage types. On one page, you can quickly see a 30-year fixed rate, a 15-year fixed rate, and even a 5/1 ARM (adjustable rate mortgage). Shop for a mortgage here >>

Cash-Out Refinance

A cash-out refinance is exactly what it sounds like. You can pull cash out of the equity you’ve built in your home and use the funds however you decide. Often, homeowners choose to pull cash out during a refinance in order to consolidate debt or make home improvements.

If you have credit card or personal loan debt, paying it off with the proceeds from a cash-out refinance could help you significantly reduce your interest rate. The average credit card interest rate, for example, is currently more than 10 percentage points higher than mortgage rates.

You can also use home equity to re-invest in your property and increase its value. For example, you could use the cash to update your windows, renovate your kitchen, or replace your roof.

If you're considering a cash-out refinance, you should compare this loan to a home equity loan or HELOC. In either case, you'll add to the balance of your current mortgage. But depending on your situation, one type of loan may be a better option than the other.

How To Compare Mortgage Refinance Rates

Ready to compare mortgage refinance rates. Here are the steps you should take to find the right mortgage refinancing loan for your situation. 

Consider Your Goals

 If you want to streamline your finances by saving money on interest payments, then a classic refinance is the answer you are looking for. But if you need money to cover an expense, then a cash-out refinance could provide the funds you need.

Whether you choose a rate and term or cash-out refinance, keep in mind that you'll have the option to reduce your rate even further by purchasing mortgage points. Typically, you'll pay 1% of the loan amount to lower your interest rate by 0.25%.

Buying points could be a good option if you plan to stay in your home for a long period of time. But if you plan to sell your home in a few years, you may not save enough in interest before you sell to break even on the upfront fees you'll pay. Learn how to calculate your break-even point.

Take some time to consider why you want to refinance before shopping around. With a clear vision of what you want to achieve with your refinance, you’ll be able to narrow down your options more quickly. 

Compare Lenders

Not all mortgage lenders are created equally. Although a mortgage may seem like a standard product with the same offerings available at every lender, that is not the case. With that, it is important to shop around. 

Keep in mind that when you compare mortgage refinance rates on sites like Credit Karma it won't hurt your credit score. Rate shoppers have a window of time in which multiple hard inquiries are treated as one as it relates to their credit scores. This shopping window can range from 14 days (most common) to 45 days depending on the scoring model that the lender uses.

Explore Different Interest Rates And Terms

You don’t want to overpay for your mortgage. With that, you should start by comparing rates and terms available through different lenders. By shopping around, you can ensure that you are getting the best deal on your new loan.

Not sure where to start? We’ve compiled a list of the best places to refinance your mortgage in 2021. But if you don’t want to spend any time hunting through the offers of different lenders, then check out Credit Karma Home. This comparison shopping tool allows you to explore the offers of dozens of lenders in one quick process.

One of the great features is that you can quickly see your rate, monthly payment, and any fees involved in refinancing. 

Examine Customer Service Ratings

A mortgage is a long-term financial product that kicks off with weeks of paperwork. Whether you're purchasing your home for the first time or refinancing the mortgage, there is a lot of paperwork involved.

Unfortunately, a lender with a bad track record of taking care of its customers can lead to a string of headaches for you. With that, take a minute to check out the customer service ratings of a potential lender before signing on the dotted line. On Credit Karma Home, you can read unbiased customer reviews for each of its partner lenders. 

Close And Enjoy Your Refinanced Terms

Although the process of obtaining a refinance can take some time and energy, the end results can be worth the effort. If you took the time to shop around carefully, then you’ll be able to bask in the glow of thousands saved in interest payments or the cash on hand to tackle a big expense. 

Final Thoughts

Mortgage refinancing can be a good idea if you can find interest rates and terms that beat your current mortgage rates and terms. Take some time to consider how your financial picture could change for the better if you pursue a refinance.

If you’re not sure where to start, hop over to Credit Karma Home to compare mortgage refinance rates in your area. You might be surprised how much you can save. Get a quote here >>