How Are Refinance Rates Determined?

Why did your neighbor get 6.0% while you got quoted 6.5%? Because mortgage rates aren't one-size-fits-all.

Let me show you exactly how lenders price refinance loans.

The Base Rate: What Lenders Start With

Every morning, lenders get a rate sheet based on the 10-year Treasury yield and the mortgage-backed securities (MBS) market.

Think of it like gas prices. The wholesale cost (Treasury yields) sets the baseline. Then each gas station (lender) adds their markup.

As of March 2026, the 10-year Treasury is around 4.25%. That's the foundation. Lenders add 1.5-2.5% on top to cover their costs and profit.

That's how we land at 6.0-6.5% for most conventional refinances.

The 7 Factors That Adjust Your Rate

Once the lender has their base rate, they adjust it based on your specific situation. Here's what matters:

1. Credit Score (Biggest Impact)

Your credit score can swing your rate by 1-2%.

March 2026 rate tiers (conventional 30-year fixed, 80% LTV):

• 760+ credit: 6.00%
• 740-759: 6.125%
• 720-739: 6.25%
• 700-719: 6.50%
• 680-699: 6.875%
• 660-679: 7.25%
• 640-659: 7.625%
• 620-639: 8.00%+

A 100-point credit score drop costs you 1% in rate. On a $400,000 loan, that's $240/month more in interest.

Broker's Tip: If your score is 659, wait until you hit 660 before applying. That 1-point jump can save you 0.375% (about $90/month on a $400,000 loan).

2. Loan-to-Value (LTV) Ratio

LTV = Loan Amount ÷ Home Value

The more equity you have, the lower your rate.

LTV pricing adjustments:

• 80% LTV or less: Base rate (no adjustment)
• 80.01-85%: Add 0.25-0.50%
• 85.01-90%: Add 0.50-0.75%
• 90.01-95%: Add 0.75-1.25%
• 95.01-97%: Add 1.25-1.75%

Example:

• Home value: $500,000
• Loan amount: $400,000
• LTV: 80% → Base rate

If you borrowed $450,000 instead (90% LTV), your rate would be 0.5-0.75% higher.

3. Loan Amount (Conforming vs Jumbo)

2026 conforming loan limit: $802,650 (most areas)

If your loan is above $802,650, you're in jumbo territory. Jumbo rates are typically 0.25-0.75% higher than conforming rates.

Why? Jumbo loans can't be sold to Fannie Mae or Freddie Mac. Lenders hold more risk.

See our jumbo refinance guide for details.

4. Property Type

Rate adjustments by property type:

• Single-family, primary residence: Base rate
• Condo: Add 0.125-0.25%
• 2-unit property: Add 0.25-0.50%
• 3-4 unit property: Add 0.50-0.75%
• Investment property: Add 0.50-1.50%
• Second home: Add 0.125-0.375%

Investment properties get hit hardest. Lenders see them as riskier (higher default rates).

5. Loan Purpose (Rate-and-Term vs Cash-Out)

Rate-and-term refinance (just lowering your rate or changing terms): Base rate

Cash-out refinance (taking equity out): Add 0.25-0.625%

Why? Cash-out refi increases your loan balance and reduces your equity cushion. Higher risk = higher rate.

See our cash-out refinance guide.

6. Debt-to-Income (DTI) Ratio

DTI = Total Monthly Debt ÷ Gross Monthly Income

Most lenders:

• DTI under 43%: No adjustment
• DTI 43-50%: Add 0.125-0.50% (depending on credit score + reserves)

High DTI + low credit = expensive. Lenders see you as stretched thin financially.

7. Reserves (Cash in the Bank)

Reserves = Months of mortgage payments you have in liquid assets

If you have 6+ months of reserves, some lenders give you a rate discount (0.125-0.25%).

If you have less than 2 months, lenders might add 0.25-0.50% (especially if your DTI is high).

Why it matters: Cash reserves show you can weather job loss or unexpected expenses.

How Lenders Build Your Rate: Real Example

Let's build a rate from scratch for a real borrower.

Borrower profile:

• Home value: $600,000
• Current loan: $450,000
• Credit score: 720
• DTI: 40%
• Property: Single-family, primary residence
• Loan purpose: Rate-and-term refinance

Step 1: Start with base rate

• 10-year Treasury: 4.25%
• Lender margin: +1.75%
• Base rate: 6.00%

Step 2: Credit score adjustment

• 720 score tier: +0.25%
• Current rate: 6.25%

Step 3: LTV adjustment

• LTV: $450k ÷ $600k = 75%
• Under 80% = no adjustment
• Current rate: 6.25%

Step 4: Property type

• Single-family, primary residence = no adjustment
• Current rate: 6.25%

Step 5: Loan purpose

• Rate-and-term = no adjustment
• Final rate: 6.25%

If this borrower had a 760 credit score instead of 720, their rate would be 6.00%. That 40-point credit difference costs them 0.25% (about $60/month on a $450,000 loan).

Broker's Tip: Before you apply, ask for a loan estimate with all pricing adjustments broken out. Some lenders hide junk fees in the rate. You want transparency.

Why Rates Change Daily (Sometimes Hourly)

Mortgage rates move with the bond market.

When investors buy mortgage-backed securities (MBS), rates drop. When they sell, rates rise.

What moves the MBS market?

• Federal Reserve policy (rate cuts/hikes)
• Economic data (jobs report, inflation, GDP)
• Global events (geopolitical shocks, financial crises)

Example: March 7, 2026. Jobs report comes out. Unemployment is lower than expected. Wall Street thinks the Fed won't cut rates. MBS prices drop. Mortgage rates jump 0.25% in one day.

This is why rate locks exist. Once you lock, your rate won't change (even if rates spike).

See our rate lock guide.

The Lender's Margin: Why Shop Around

Every lender adds a margin on top of their cost.

Lender A might charge 1.5% margin. Lender B might charge 2.25% margin.

Same base rate, but Lender B quotes you 0.75% higher.

This is why you MUST shop 3-5 lenders. Use our quote tool to compare.

I've seen borrowers save 0.5-1% just by shopping around. On a $400,000 loan, that's $120-240/month.

Discount Points: Buying Down Your Rate

You can pay discount points to lower your rate.

1 point = 1% of your loan amount.

Typical pricing:

• Pay 1 point ($4,000 on a $400,000 loan) → lower rate by 0.25%

Is it worth it? Depends on how long you keep the loan.

Example:

• Loan: $400,000
• Rate without points: 6.25%
• Rate with 1 point: 6.00%
• Cost of 1 point: $4,000
• Monthly savings: $60

Break-even: 67 months (5.6 years)

If you keep the loan 10+ years, pay points. If you're selling or refinancing in 3-5 years, skip them.

See our points vs no-points guide.

Par Rate vs Lender Credits

Every rate sheet has a par rate — the rate where you pay zero points AND get zero credits.

Below par: You pay points to buy down the rate. Above par: Lender gives you credits to cover closing costs.

Example rate sheet: | Rate | Points/Credits | |------|----------------| | 5.75% | Pay 2 points ($8,000) | | 6.00% | Pay 1 point ($4,000) | | 6.25% | Par (no points, no credits) | | 6.50% | $2,000 lender credit | | 6.75% | $5,000 lender credit |

If you take 6.50%, the lender gives you $2,000 toward closing costs. But you're paying 0.25% more in rate forever.

This is the no-closing-cost refinance strategy. See our no-cost refinance guide.

Government-Backed Loans: Different Rules

FHA, VA, and USDA loans price differently.

FHA Loans

• Rates are slightly higher than conventional (usually 0.125-0.25%)
• Credit score has less impact on rate (more forgiving for lower scores)
• Upfront MIP: 1.75% of loan amount
• Monthly MIP: 0.55% of balance (never goes away)

VA Loans

• Rates are slightly lower than conventional (usually 0.125% less)
• No mortgage insurance (huge savings)
• VA funding fee: 0.5-3.3% depending on use

USDA Loans

• Rates are competitive with conventional
• Upfront guarantee fee: 1%
• Monthly guarantee fee: 0.35%

See our conventional vs FHA guide.

ARM vs Fixed: Rate Differences

Adjustable-rate mortgages (ARMs) start with lower rates than fixed.

March 2026 typical rates:

• 30-year fixed: 6.25%
• 7/1 ARM: 5.50%
• 5/1 ARM: 5.25%

That 0.75-1% discount is tempting. But after the fixed period ends, your rate adjusts yearly based on an index (usually SOFR + margin).

ARMs make sense if:

• You're selling/refinancing within the fixed period
• You expect rates to drop (you can refinance before adjustment)

ARMs are risky if:

• You're staying long-term
• You can't handle payment spikes

See our fixed vs ARM guide.

Frequently Asked Questions

Q: Can I negotiate my mortgage rate?

Not really. Mortgage rates are tied to the bond market. But you CAN shop lenders to find the best price. Some lenders are just cheaper than others.

Q: Do mortgage brokers get better rates than banks?

Often, yes. Brokers have access to multiple lenders and can shop your scenario to find the best price. Banks only offer their own rates.

Q: Why did my rate change between pre-approval and closing?

Because you didn't lock your rate. Rates float with the market until you lock. If the market moved against you, your rate went up.

Q: How long is a rate lock good for?

Typically 30-60 days. If you don't close by the lock expiration, you either pay a fee to extend or your rate expires (and you get whatever rate is available that day).

Q: Can I lock a rate before I find a home to refinance?

No. You can only lock a rate once you have a specific property and loan application. But you can get pre-qualified to see estimated rates.

Next Steps

Want to see what rate you qualify for? Get personalized quotes from multiple lenders:

Get your refinance rate →

I'm a California licensed mortgage broker with 15+ years experience (DRE #01212512). I'll shop your scenario to find the best rate available.

Related guides:

• How to Get the Best Refinance Rate
• What Is a Good Refinance Rate in 2026?
• Rate Lock Explained
• APR vs Interest Rate
• Current Refinance Rates