Rate and Term Refinance

A rate and term refinance is the refinancing of an existing home loan in order to change the interest rate and/or term (length) of a mortgage without taking any additional cash out.   Closing costs and pre-paid items like interest and taxes can be added to the loan amount, but the client cannot receive more than $2,000 at closing.

Most rate and term refinances are done to get a lower interest rate and therefore have a lower monthly payment.  Therefore, most rate and term refinance activity is driven by a drop in interest rates.

But you can also do a rate in term refinance strictly to change the term of your loan.  you may want to go from a 30 year fixed loan to a 15 year fixed to pay off your loan sooner.  Or you may want to go from a 15 year fixed to a 30 year fixed to lower your payment.

You may even do a rate and term refinance in order to go from an ARM to a fixed rate loan.

For example, upon seeing interest rates drop, a homeowner who has been paying their 30-year mortgage for 5 years at a rate of 5.5% might want to take advantage of a rate and term refinance to a new 30 year fixed at 4.5%.  Their loan would start over at a new 30 year term and the rate would be 1% lower.

The homeowner may decide to go with a 15 year fixed at 3.75% get to an even lower rate and pay the loan off faster.  The payment may be about the same as the original payment based on the higher rate and larger loan amount, but the homeowner will pay off the loan 10 years sooner.