Interest rates and inflation are important economic indicators which can tell experts, investors and consumers how the economy is performing. The two are also correlated. When there is high inflation, the government raises interest rates to mop up excess cash from the market. When there is deflation, the government lowers interest rates to spark economic growth by introducing more money into the market. It is important for borrowers to understand the relationship between the two economic indicators. During times of high inflation, mortgage rates and mortgage refinance rates are bound to go up. Applying for mortgage refinancing during such a time would be a costly mistake. The following are several other key factors affecting mortgage refinance rates:

i) Credit Scores

Your income, assets and repayment history are some of the factors lenders will consider when processing your application for mortgage refinance. If you have a low credit score, lenders will get the impression you’re not credit worthy. Similarly, lenders will be eager to provide you with their low-interest mortgages if you have a high credit score. If you would like to get the lowest mortgage refinance rates, be sure to work on your credit rating before you submit your application. Contact your credit bureau and ask for errors and omissions on your credit report to be rectified. It is important to note that some people who have poor credit ratings have low scores due to errors which can be blamed on the consumer credit reporting bureau. Therefore, you should ask for your credit report and check for errors before submitting your application.

ii) Negotiation Skills

If you are a poor negotiator, expect to pay the rate of interest quoted by lenders when you seek mortgage refinancing. If you know your strengths and weaknesses, however, you can easily negotiate a lower rate of interest with your lender. For instance, you may be able to convince the lender to give you a lower interest rate due to your high credit score. That said, your negotiation skills will affect the refinance rate you get.

iii) Government Policy

In times of economic recession, the government can decide to lower interest rates to jump-start the economy. After all, consumers are more likely to buy homes if interest rates are low than when they are high. This will increase demand for new homes, which will give the construction industry a boost. More jobs will also be created in the construction industry. Over the years, deliberate interest reductions attributed to government policy have produced positive results, as far as jump-starting the economy is concerned. You may want to refinance your mortgage when the government lowers interest rates. As you can see, government policy can affect mortgage refinancing rates.

iv) Type of Loan

If you are refinancing to convert an ARM to an FRM, lenders may quote a higher interest rate, knowing that the new rate will still be more convenient to you compared to your adjustable mortgage rate. On the other hand, if you would like to convert from a high interest fixed rate mortgage to an adjustable rate mortgage, lenders may quote a much lower interest rate as they hope to get a better return in the future.