Rate & Term FAQ

What is a rate and term refinance?

• A rate and term refinance is a mortgage refinancing option where the primary goal is to change the interest rate, the loan term, or both, without taking any cash out from the equity of the home.

How does a rate and term refinance differ from a cash-out refinance?

• In a rate and term refinance, you adjust the interest rate or the loan term (or both) without receiving cash from your home equity. In a cash-out refinance, you take out a larger loan than your current mortgage and receive the difference in cash.

What are the benefits of a rate and term refinance?

• Benefits can include lowering your monthly payments by securing a lower interest rate, shortening your loan term to pay off the mortgage faster, or switching from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage for more predictable payments.

When should I consider a rate and term refinance?

• You might consider it when interest rates have dropped significantly, when your credit score has improved, when you want to switch from an ARM to a fixed-rate mortgage, or if you want to shorten your loan term to build equity faster.

How much can I save by refinancing to a lower rate?

• Savings depend on the new interest rate, the loan amount, and the length of your mortgage. A lower rate can reduce your monthly payment, and over time, save you thousands of dollars in interest payments.

What are the costs involved in a rate and term refinance?

• Costs typically include closing costs (such as origination fees, appraisal fees, and title insurance), which can range from 2% to 5% of the loan amount. These costs can often be rolled into the loan or paid upfront at closing.

How do I qualify for a rate and term refinance?

• To qualify, lenders typically look at your credit score, loan-to-value (LTV) ratio, income, and debt-to-income (DTI) ratio. A good credit score and a solid financial history will help you qualify for better rates.

Can I refinance my loan term from 30 years to 15 years?

• Yes, many homeowners opt to shorten their loan term from 30 years to 15 years to pay off the loan faster and save on interest. However, this may increase your monthly payment.

Can I refinance from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage?

• Yes, many homeowners refinance from an ARM to a fixed-rate mortgage to secure a stable interest rate and predictable payments, especially if they anticipate interest rates will rise.

How soon can I refinance after getting my mortgage?

• Most lenders require a waiting period of six months to a year after taking out a mortgage before refinancing. However, you should check with your lender, as terms can vary.

How does refinancing affect my credit score?

• A refinance may cause a temporary dip in your credit score due to the hard inquiry performed by the lender. However, if the refinance reduces your debt or improves your payment history, it can improve your score in the long run.

Can I refinance if my home’s value has dropped?

• Yes, you may still be able to refinance if your home’s value has dropped, though options may be more limited. Programs like the Home Affordable Refinance Program (HARP) were created for situations like this, but many programs have specific eligibility requirements.

How long does a rate and term refinance take?

• The process typically takes 30 to 45 days, though this timeline may vary based on the lender, your financial situation, and the complexity of the loan.

Will I have to pay private mortgage insurance (PMI) again if I refinance?

• If your loan-to-value (LTV) ratio is above 80%, you may need to pay PMI on your new loan. However, if your home has appreciated in value and your LTV is 80% or lower, you can avoid PMI when refinancing.

Is a rate and term refinance worth it if I plan to move soon?

• It depends on your break-even point, which is the time it will take for the savings from the refinance to cover the closing costs. If you plan to move before reaching the break-even point, refinancing may not be worth the upfront costs.