Why are refinancing rates higher than mortgage rates?

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 drop during the process, the client may leave their lender and go with another lender who is offering a lower rate, thus leaving the original lender with lock in fees.

- a customer can decide to cancel the transaction at anytime if he/she has a change of heart and does not deem enough benefit after applying for the refinance.

More factors can adversely affect a refinance transaction, costing the bank thousands of dollars in upfront fees. They may charge a higher rate due to the inherent volatility.

Hope this helps!

Ace Watanasup

Executive Vice President / Regional Manager – NMLS ID# 483972

Citizens Bank, N.A.

Email: ace.w@citizensbank.com