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Why “Refi” Rates Are Higher Than “Purchase” Rates

Why "Refi" Rates Are Higher Than "Purchase" Rates

Refinance borrowers sometimes see the rate quote in my daily blog and ask why their rate is higher than the “purchase money” rate quote in my blog.

B/c this has been happening more often than not lately, I thought it warranted a brief explanation.

ASSUMPTIONS FOR BLOG VS. FACTS FOR REFI

The assumptions we use for this blog’s rate quote include: a 75% loan-to-value ratio; a 780 or higher credit score; and “Jumbo” financing.

As I mention often, for strong borrowers, jumbo financing usually offers lower rates than “conforming” (Fannie/Freddie) financing.

So conforming borrowers often have higher rates than what I quote in my blog.

In addition, loan-to-value ratios and credit scores can also significantly affect rates.

I encourage everyone to re-read and/or share my blog about the 12 Factors That Impact An Individual’s Interest Rate.

COVERING CLOSING COSTS

Another reason our refi rates are higher is b/c we have to increase the rates to generate enough extra rebate or commission to cover closing costs (up to $4,000).

The quotes for this blog are for purchase money mortgages with no credits for closing costs at all. So, this factor alone affects the rate by about 1/4%.

Readers might also want to revisit this recent blog about How No Cost Refi’s Work.

RATES LOWER/RATE ROLL-DOWNS

Sometimes of course interest rates really are lower than where they were on the day we locked. If they are a lot lower, we are happy to roll down the rate.

But, as I mentioned in a blog last week, “rate-roll-downs” are expensive so we need a significant improvement before we can afford to cover the cost of a roll-down.

Readers might want to revisit my blog about Rate-Roll-Downs too.

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 01524255, NMLS# 335646