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IF you take a new loan to pay back the remainder of an existing fixed interest mortgage, and use the same property as collateral for the new loan, you are supposed to have availed of 'mortgage refinance'. Mortgage refinance can save you hundreds of dollars every month if the interest rate in the market is below the rate at which you took the original mortgage.

If you surf the Web, you will find a plethora of articles and offers enticing you to avail of 'lowest mortgage refinance rate' in specific states of the United States. How genuine are these offers of state-by-state 'lowest' mortgage refinance rates ?


Lowest Mortgage Refinance Rates


Understanding interest rates

To find an answer to the above question, we need to have a basic understanding about the interest rate mechanism. In most countries of the world, interest rates are adjusted from time to time by the country's central bank. The equivalent of 'central bank' in the United States is the Federal Reserve Board, popularly known as Fed.

The Fed is the regulator of all banking activity in the United States. All banks, whether US-based or US branches of foreign banks, have no option but to comply with the regulatory stipulations and guidelines defined by the Fed. Interest rates are also defined by the Fed and banks themselves have very little leeway over the rates.


Why the Fed adjusts rates

The Fed is responsible for the financial aspect of the US economy. If the economy is booming, there may be inflationary pressures leading to increase in money supply and rise in prices. This is when the Fed will normally increase interest rates to encourage people to keep their money in bank deposits and not splurge it.

On the contrary, if the economy is in recession -- or if there is a generally negative sentiment in the people which makes them pessimistic about the economic future -- the Fed will normally decrease interest rates, so that people are able to borrow. Thus, we have seen why interest rates fluctuate from time to time.


Mortgage refinance rates

Mortgage refinance rates are also interest rates. Lenders have to abide by the rates and they cannot offer any rate they want. If they were to be allowed to do so, the market would be devastated with the big lenders eating up the small lenders and then domineering the market.

Thus, lenders have to operate within limits specified by the Fed. And the writ of the Fed runs throughout the United States, i.e., in each and every state. Therefore, terms such as 'lowest rate in Alabama', 'lowest rate in California', 'lowest rate in Arizona' and only marketing tactics by lenders who want to show you that their rates are 'customized' for different states.



There is nothing wrong with the lenders and brokers trying to convince you that they have special rates for each state, but -- as a customer -- you should know that mortgage refinance rates are the same in all states and are determined on the basis of interest rate adjustments by the Fed.

Even online refinance calculators may ask you about the state you are in, but after a click or two you will find yourself on the same page that applies to all surfers regardless of their location.

Note however that Alaska and Hawaii may have slightly different rules in conforming mortgage, i.e. mortgage that does not exceed the maximum mortgage limit of the two primary Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac.


Different lenders / brokers therefore compete with each other on other criteria, such as refinance fee, processing and closing costs, specialist advice on the best type of refinance for you, interest rate intelligence, service quality, and so on.