Mortgage Refinancing and Bank Prime Loan Rate: What You Need to Know

When you lock in your loan interest rate during the home buying process, you get the security of knowing just how much you will be paying each month for your mortgage. As a result of this stability, many people assume that the interest rate they agreed upon at closing is set in stone for the loan’s entire life. But this isn’t necessarily the case; many homeowners decide to refinance their mortgage at some point.

What Does Mortgage Refinancing Mean?

In the mortgage world, refinancing means replacing one mortgage with another. When you decide to refinance your mortgage, you are essentially asking a new lender to take over the debt that you owe on your current loan. The new lender will then pay your original lender the amount of your mortgage, and you will begin to make payments to the new lender.

Refinancing your mortgage is a good option if you are looking to save money on your monthly payments. By choosing a shorter term for your new loan, you can lower the amount of interest you pay over your loan’s life. This can result in lower monthly payments.

Choosing to refinance your mortgage is not a decision to be taken lightly. You need to be well educated of the potential consequences of going through this process, including changing the terms of your loan and paying closing costs. However, if you find that a refinance is right for you, it can be a great way to reduce the interest you pay and make your monthly payments more manageable.

What is the Bank Prime Loan Rate?

The bank prime loan rate, or simply known as “prime rate,” is considered the benchmark interest rate set by the Federal Reserve Bank (the Fed), although many commercial banks still choose to set their own rates based on the current prime loan rate. This benchmark rate is used as a reference for the interest rates that are charged on various loans, such as home equity loans. The final rate you receive is based on your credit score and other factors, such as your loan-to-value (LTV) ratio. The higher your credit score, which is determined by your LTV, your debt-to-income ratio, and your payment history, the lower your interest rate will be. However, having a poor credit score/history will result in higher interest rates.

Your mortgage lender may use the prime rate as a reference for determining the interest rate on your mortgage. Typically, the interest rate on your mortgage is a small percentage above the prime rate.

Some lenders will offer refinancing options that allow you to lock in the prime rate before applying for the loan. This ensures that you’ll be able to take advantage of current low prime rates.

What is the Current Prime Rate?

The current prime rate is 3.25%. If you are currently toying around with the idea of refinancing your mortgage, you should know that the prime rate is now at its lowest level in more than five years. For this reason, many homeowners are choosing to refinance their mortgages to take advantage of this low interest rate.

Mortgage Refinancing with Fairway’s First Team

Mortgage refinancing does not have to be an overwhelming process. Instead of jumping into the process head first, take the time to speak with a team of professionals.

Fairway’s First Team has won numerous Top Lender Awards – making them the perfect team to work with if you’re considering refinancing your mortgage.

Looking to lower your monthly payments and finish your mortgage faster? Refinance with Fairway today!

 

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