Great question. Ace Watansuparp, Executive Vice President at Citizens Bank, has your answer. All things equal, refinance and purchase have the same rates. But in a refinance boom with interest rates at an all time low, as we have now, two things tend to happen: 1) Refinance volume dramatically increases. Because purchase transactions have hard deadlines - closing dates, etc. - many times refinances can affect the banks ability to deliver the loans to meet those hard deadlines. Interest rates on a refinance slightly increase to dictate the amount of volume coming in relative to the banks capacity in order to maintain a high level of service on the purchase transactions. 2) We see lock-jumpers. When a client applies for a refinance it is not always guaranteed that the loan closes: – there could be appraisal issues where the value does not come in at the target value. – if rates … Read More.
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