Yale Roth M.A., M.Ed

Are Home Loan Rates Higher For A Mortgage Refinance Or New Home Purchase?

Every now and again, I’ll get this home loan question: “Are Home Loan Rates Higher For A Mortgage Refinance Or A New Home Purchase?”

Home loan rates are priced a bit differently for a mortgage loan refinance – but only for a cash out refinance.

(A cash out refinance is when a homeowner borrows from their home’s equity and takes out additional cash over and above what is owed on the mortgage loan balance.)

For example, one of the main factors that effect home loan rates – irrespective of whether the transaction is a mortgage loan refinance or new home purchase – is the loan to value ratio.

That is to say, if there is a lot of equity in the property, then the home loan rate will be lower or less expensive.

So,  the home loan rate isn’t higher for a refinance or purchase if there is a good deal of equity in the home – say more than 40%.

However, once the loan to value ratio starts to go above 60%, then the transaction type can make the mortgage loan rate higher – but only if the transaction is a cash out refinance.

The home loan rates for a no cash out refinance, also called a rate and term refinance, and a home purchase mortgage are the same.

In conclusion, home loan rates are not higher for a mortgage loan refinance if the loan to value ratio is below 60%.

The home loan transaction types are priced the same.

Once the loan to value ratio goes over 60%, then the home loan rate for a cash out refinance may be higher than a no cash out refinance or new home purchase mortgage.

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