Rate and Term Refinance

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What Is a Rate-and-Term Refinance?

A rate-and-term refinance replaces your existing mortgage with a new one—either with a lower interest rate, a different loan term, or both. The goal is simple: improve your mortgage without tapping into your home’s equity.

Say you’ve been in your home for a few years and interest rates have dropped. You could refinance into a new loan at today’s lower rates, which means you’d likely pay less every month or save significantly over the life of the loan. Or maybe your financial situation has improved and you’re ready to shift from a 30-year loan to a 15-year term to pay off your home faster.

Why Do It?

There are several reasons people refinance:

• To lock in a lower interest rate

• To reduce monthly payments

• To shorten the loan term

• To switch from an adjustable-rate to a fixed-rate mortgage

• To eliminate private mortgage insurance (PMI) if you’ve reached 20% equity

These benefits can vary depending on your credit score, market conditions, and how long you plan to stay in your home.

What the Process Looks Like

The process is very similar to your original home loan. Here’s what to expect:

1. Application: Start by applying with a lender and providing your current mortgage details, income, employment information, and credit profile.

2. Credit Check: A hard inquiry will be performed to determine your creditworthiness and what rates you may qualify for.

3. Appraisal: Your home will be appraised to confirm its current market value. This helps ensure the new loan meets loan-to-value (LTV) guidelines.

4. Loan Estimate: You'll receive a detailed breakdown of the new loan terms, closing costs, and expected monthly payment.

5. Underwriting: The lender reviews your income, debts, credit history, and the home’s value to finalize approval.

6. Closing: You’ll sign new loan documents, pay closing costs (which can often be rolled into the new loan), and your old mortgage will be paid off.

7. New Loan Begins: You’ll start making payments on the new mortgage—now with better terms tailored to your financial goals.

What It Doesn’t Include

A rate-and-term refinance doesn’t give you access to your home’s equity in the form of cash. If you’re hoping to fund a renovation or pay off other debts, a cash-out refinance would be a better fit.

Is It Right for You?

If you’ve improved your credit since getting your original loan, or if market rates have dropped, refinancing could save you a substantial amount of money. It’s also a great option if you want to build equity faster by switching to a shorter loan term.

Just remember to weigh the closing costs and potential break-even point—how long it takes for the monthly savings to offset the upfront expense.

Final Thoughts

A rate-and-term refinance is one of the most strategic moves a homeowner can make. It’s about aligning your mortgage with your current lifestyle, income, and future goals.

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Want to find out if this makes sense for you?

 

Schedule a free consultation or apply online now to speak with a licensed mortgage expert who can walk you through the numbers and options.