Right now, most if not all major banks have mortgage refinance rates about 1% higher than the rate for a mortgage used to purchase a property. Up until a few months ago, I don't recall ever seeing any spread between advertised refinance and purchase rates, never mind such a big one. Is there historical precedent for this practice?

What is stopping a lender from undercutting other banks by offering only an 0.5% spread? Is it collusion that nobody is doing so?

2 Answers 2


Looking at bankrate.com, I am finding refinances about 5 basis points higher than purchases with other variables held constant. So I am not finding what you say is true. The banks are voting that refinances, at this stage, are about .03% to .05% riskier than new purchases at this juncture.

One can speculate why that is, but it would only be speculation. Perhaps the banks want to hold onto their existing mortgages given the frightfully low interest rate environment. Perhaps they are worried about people seeking to get cash out of their home (a common thing with a refi) or they feel that home prices will drop in the future.

I would not say there is a hard precedent that you are looking for other than the banks are looking to project 30 years in the future with many events in the interim that could cause defaulted loans and devaluation of their security.

  • Bankrate gives 50 basis points delta between purchase and refinance in my zip code (98008) on one page, and failed to find any purchase rates on a different page. Weird.
    – stannius
    Commented Jul 17, 2020 at 16:36

Please refer to this - Fannie Mae spreadsheet for Loan Level Price Adjustments.


Pricing for purchases and rate/term aka limited cash out refinances will be the same. Cash out refinances are always higher, due to the adjustments, depending on the loan-to-value. Cash out + high balance (when your county supports a higher conforming loan limit and you choose to go beyond the national conforming loan limit of $510,400 of this year) are even more expensive with a 100bps hit.

Sometimes, lenders can do overlays to this i.e. offer specials for purchases only, or offset the impact of an adjustment.

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