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!
Executive Vice President / Regional Manager – NMLS ID# 483972
Citizens Bank, N.A.