A cash-out refinance rate can often be 0.20% to 0.50% higher than a standard purchase mortgage rate. This small difference is because lenders see taking cash out of your home as a slightly higher risk. But many people ask us, are refinance rates higher than mortgage rates all the time? The answer is no, and a simple refinance often comes with the same low rates.
Let’s break down when you pay more and when you don’t.
The Simple Answer: No, Not for a “Rate-and-Term Refinance”
For a rate-and-term refinance, the rates are typically not higher. Here’s a simple breakdown of why:
Your overall financial health is the key to getting the best rates, whether you have a $200k salary or are just starting your career. Understanding all the options available is a core part of our services.
Why Cash-Out Refinance Rates Are Higher
The rules change when you do a cash-out refinance. This is when you take out a new, larger mortgage on your home and get the extra money in cash.
This is a fantastic way to pay for things like home renovations or to invest in a business. However, lenders charge a slightly higher interest rate for this type of loan. Here’s why:
- Increased Lender Risk: The bank is lending you more money than you owed before. This increases their financial risk if you have trouble with payments.
- Higher Loan-to-Value (LTV): You are borrowing more money against the value of your home. A higher loan-to-value (LTV) ratio is always seen as riskier by lenders.
- Using Your Home Equity: You are tapping into your home equity, which is the part of your home you truly own. The slightly higher rate is the cost of being able to access that cash. It is a common and smart strategy for investors looking for financing for a business in BC.
Factors That Determine Your Specific Refinance Rate
Lenders look at a few personal factors to decide the exact rate they will offer you.
Your Credit Score
A higher credit score always helps you get a better interest rate. It shows lenders that you are a responsible borrower.
Your Loan-to-Value (LTV) Ratio
The more equity you keep in your home, the lower your rate will be. Keeping your LTV below 80% (meaning you have at least 20% equity) often qualifies you for the best rates. It gives you the same benefits as our uninsured mortgage solutions.
The Lender
Different banks and credit unions have different rates and rules. What one lender offers can be very different from what another lender offers.
How to Get the Best Possible Refinance Rate
Getting the best deal is all about creating competition for your business. According to experts at Asim Ali, here are the simple steps to follow:
We also recommend using a mortgage refinance calculator for BC. This tool lets you run the numbers yourself and see how a lower interest rate could change your monthly payments.
Your Path to a Better Mortgage
So, let’s recap the main takeaway. The answer to “Are refinance rates higher than mortgage rates?” is NO for a simple refinance, and YES for a cash-out refinance.
Knowing this key difference helps you understand what to expect and how to get a great deal. Getting the right advice is the first step to improving your financial situation.
Let our team navigate the market for you. We will analyze your situation and find the lender with the best possible rate for your needs. Apply Now for a free, no-obligation consultation.
Author Bio
Asim Ali is a Principal Mortgage Broker who sees refinancing as a powerful financial tool. For over a decade, he has helped hundreds of BC homeowners restructure their debt, lower their payments, and use their home equity to invest in their future. He is an expert at creating smart, long-term mortgage strategies that save his clients thousands.