large difference between purchase and refi rate

[tulak]

I’ve noticed this for the last month, but don’t know why.

I’ve been looking at 30-year fixed rate mortgages and there’s about a 1% difference between rate for a purchase vs refi.

For example, PenFed is offering 2.875% for a purchase and 3.875% for a refi.

Does anybody know why?

 

[COcheesehead]

When we did ours in April, we were told the refi business was off the hook out of control. I bet it has to do with demand.

 

[aja8888]

I have a friend who is a mortgage broker. He told me recently he has 80 refi's in process and two new mortgages started. Everyone is refi'ing...so the rates are a bit higher. Most people bury the refi cost into the new loan.

 

[jazz4cash]

Yes I’ve noticed this too but have not seen a full point difference. It makes zero sense to me. A refi should be less work and less risk. Navy Federal OTH offers .75 % discount on refi of their own mortgages vs. another lender.

 

[COcheesehead]

Banks are businesses. They will charge what the market will bear.

 

[aja8888]

Yes I’ve noticed this too but have not seen a full point difference. It makes zero sense to me. A refi should be less work and less risk. Navy Federal OTH offers .75 % discount on refi of their own mortgages vs. another lender.

Agreed, a refi is probably less work and less commission for the lender/broker. Maybe that's a reason why a refi rate is slightly higher than a original mortgage?

I think if one shops rates they will find all kinds of variations. "Point" charges are nothing more than an interest percent paid up front to give the illusion of a "low" long term rate offer.

 

[OldShooter]

Just guessing, but it may be due to the resale market. Maybe refis have higher default rates or refis are more likely to get paid off early, or maybe the rating agencies don't like them, or maybe the bank must retain a higher percentage on a refi loan, or ... <your guess here>.

 

[Teacher Terry]

We refinanced 2 months ago at 2.84.

 

[jazz4cash]

Agreed, a refi is probably less work and less commission for the lender/broker. Maybe that's a reason why a refi rate is slightly higher than a original mortgage?



I think if one shops rates they will find all kinds of variations. "Point" charges are nothing more than an interest percent paid up front to give the illusion of a "low" long term rate offer.

I think slightly higher would be 1/8th or 1/4th premium but I’m seeing higher differences like 3/8ths at BoA right now.

 

[Retireby45ish]

We refinanced 2 months ago at 2.84.

What fees did you pay for the refinance? And what was the amt refinanced?

I’m interested but since I won’t be at the property long I want to make sure savings are greater than fees.

Thanks

 

[CRLLS]

Are you guys who are refinancing, going for 30 years? The last time I looked at refinancing I did not want to extend my payments beyond what I have left on my current mortgage. It seems that at 20 years and < $100K refinancing, few places online are willing to go there at all and those who will, have a higher interest rate. I don't understand it myself.

 

[JDARNELL]

I decided to purchase another home and I locked in 2.5% on a 30 yr VA for the entire VA entitlement. While I have always been in the pay off mortgage camp and it has served me well I will keep this one and buy future income properties with cash.

 

[Gumby]

I'm trying to look at this from the bank's point of view. In present conditions, there may be many people who are facing a cash flow squeeze. One strategy for them is to refinance to push out the maturity and lower the monthly payments. And, yet, if these people are already on the edge, they are worse risks than someone who has been saving up a down payment and is now ready to buy . To compensate for the added risk, I would raise the interest rate for refinances.

Pure speculation, of course, but it makes sense to me.

 

[tulak]

I’m thinking this might be due to demand. I would have expected for refinance rates to go down, but I guess that demand is still high.

I closed on a refinance a month ago (5/5 ARM). Towards the end, I was asked every week or two if anything in my application changed. The bank was concerned that I lost employment and my income changed. They wanted to make sure that I was still a safe customer. I imagine this is true regardless if I bought or refinanced.

Plus, a refinance could be less risky. The applicant can have a large amount of savings, high credit score, low debt to equity ratio. From the bank’s perspective, if someone is low risk, why wouldn’t you want to give them a good rate to get their business?

If I have time later this week, I’ll try calling PenFed and ask.

 

[Teacher Terry]

Retired, 4K on 100k mortgage. 30 years.

 

[Montecfo]

Are you guys who are refinancing, going for 30 years? The last time I looked at refinancing I did not want to extend my payments beyond what I have left on my current mortgage. It seems that at 20 years and < $100K refinancing, few places online are willing to go there at all and those who will, have a higher interest rate. I don't understand it myself.

I do a 5 year or 7 year ARM. In this low rate environment they have been money.

It has been far cheaper than a fixed.

I'm currently at 2.69. I can extend my loan at the then-advertised rate for another 5 years for $295, no other costs. I have done this a couple of times.

 

[jazz4cash]

I do a 5 year or 7 year ARM. In this low rate environment they have been money.



It has been far cheaper than a fixed.



I'm currently at 2.69. I can extend my loan at the then-advertised rate for another 5 years for $295, no other costs. I have done this a couple of times.

Mind sharing the name of your lender? I listened to an interview of Chris Whalen by Barry Ritholtz on the Masters in Business podcast predicting all time low rates at some point in this cycle. That’s what I am waiting for.

 

[Retireby45ish]

I do a 5 year or 7 year ARM. In this low rate environment they have been money.

It has been far cheaper than a fixed.

I'm currently at 2.69. I can extend my loan at the then-advertised rate for another 5 years for $295, no other costs. I have done this a couple of times.

Who is the mortgage through? That’s a great deal!

 

[Montecfo]

Mind sharing the name of your lender? I listened to an interview of Chris Whalen by Barry Ritholtz on the Masters in Business podcast predicting all time low rates at some point in this cycle. That’s what I am waiting for.

It is Third Federal Savings out of Ohio. www.thirdfederal.com

 

[tulak]

It might be hard to find those rates for ARMs right now. I locked in at 2.75% for a 5/5 ARM at the start of the pandemic. It was a rare case where my timing was perfect, since the rate never went lower and was only there for a day or two. The rate now is 3.875%.

For whatever reason, the credit union that I used is expensive for mortgages right now. I use PenFed CU as a benchmark, since their rates are usually pretty good, even though I feel they were more competitive in the past.

 

[jazz4cash]

Who is the mortgage through? That’s a great deal!

I thought so. It’s a good outfit IMHO. I have HELOC there.

Our current lender Quicken loans contacted me today. They’re having a fire sale on refi closing costs...1/2 off fees quoted 2 mos ago. We re looking at 2.75 /2.5 % for 20/ 15 yrs. This pro-active offer on their part probably saved us as a customer. It’s a no brainer even though I expect rates go even lower.

 

[Montecfo]

It might be hard to find those rates for ARMs right now. I locked in at 2.75% for a 5/5 ARM at the start of the pandemic. It was a rare case where my timing was perfect, since the rate never went lower and was only there for a day or two. The rate now is 3.875%.

For whatever reason, the credit union that I used is expensive for mortgages right now. I use PenFed CU as a benchmark, since their rates are usually pretty good, even though I feel they were more competitive in the past.

Third federal 5/1 ARM with $295 closing cost is quoted now at 2.99%. With full closing costs it is 2.64%. Those are rates for Virginia.

And on the $295 closing costs product you can re-lock at their current rate for $295 at any time.