Mortgage Refinance Rates | Mortgage Refinance Interest Rates

Mortgage Refinance Interest Rates

Filed Under Refinancing |

I briefly covered some types of interest rates in my last post but did not actually explain or define what one is. To properly understand refinance rates for your mortgage, you need to know what one is.

So here is a simple definition: An interest rate is a rate that you pay for the use of money. It is often expressed as an annual percentage of the amount of money you borrow/use and is very important when it comes to refinancing. You calculate an interest rate by dividing the amount of interest by the amount you borrow (this is called the principal).

Here is an example: I borrow $150 from a bank and they charge me $35 for the use of that money. So what is the interest rate?

$35/$150 = 0.2333 and to express that as a percentage we multiply by 100. So the interest rate is 23.3%

The unstable thing with mortgage refinance interest rates is that they change all the time. Not randomly but in response to other factors in the economy. They can also be changed to affect other parts of the economy also. But the discussion and explanation of that requires me to write a book. So we will not get into that because we are looking more at mortgages and the refinancing of them.

Business that lend money have a right, a legal right, to charge a borrower this interest. That is how they make their money. The rate of a loan is most often expressed as a yearly figure, even if the terms of the loan call for a different repayment schedule, that means even though the interest rate is an annual rate you may still pay monthly or fortnightly and not yearly. This yearly thing is also called per annum. Since you are refinancing your mortgage I am sure you already know this.

Now, I did talk about variable and fixed interest rates before in another article.

Fixed - (people are not really concerned with mortgage refinance rates when they have a fixed rate) means:
If you take out a mortgage for 20 years with an interest rate of 8% per year and this is fixed for 20 years (that would be rare, you only usually get fixed rates for 1-5 years) it means that you will pay 8% interest on your mortgage every year for 20 years.

Variable means: You take out a mortgage for 20 years, with an interest rate of 8% per year because that is the interest in the economy at the time. Next year it may be 9%, the year after it might go down to 7%. So your payments change every time the interest rate changes. When they go up it is time to refinance.

Variable interest rate changes and especially interest rate increases are the main reason people look into mortgage refinance rates. They want a better (lower) interest rate than the one they have because their payments are increasing and they are finding it difficult to pay their lender.

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