Rate & Term Refinance: Lower Your Rate and Save

When mortgage rates drop or your financial situation improves, a rate and term refinance can save you thousands of dollars over the life of your loan. This straightforward refinancing option focuses on one goal: getting you better mortgage terms without taking cash out of your home's equity.

What Is a Rate & Term Refinance?

A rate and term refinance replaces your existing mortgage with a new one that has better terms—typically a lower interest rate, different loan term, or both. Unlike a cash-out refinance, you're not borrowing additional money against your home's equity. You're simply restructuring your mortgage to save money.

Key Features

Purpose: Lower rate or change term only
Credit Score: 620 minimum
Cash Out: None (except minor closing costs)
Terms: 15, 20, or 30 years
Process: Streamlined approval

Benefits of Rate & Term Refinancing

Lower Interest Rate

The primary goal—reduce your rate to lower your monthly payment and total interest paid over the loan's life.

Reduced Monthly Payment

A lower rate means more money in your pocket each month for other financial goals.

Save Thousands

Even a 0.75% rate reduction can save tens of thousands over your loan term.

Change Your Loan Term

Switch from a 30-year to 15-year mortgage to build equity faster, or extend your term to lower payments.

Convert from ARM to Fixed

Lock in a stable rate before your adjustable-rate mortgage adjusts higher.

When to Consider Refinancing

Rate Environment

Rates have dropped 0.75% or more
Your current rate is above market
Rate trends suggest increases ahead
Fixed rates beat your ARM rate

Personal Situations

Credit score has improved significantly
Income has stabilized or increased
You've built 20% equity (remove PMI)
Planning to stay in home 3+ years

Loan Changes Needed

ARM adjustment approaching
Want shorter term to save interest
Need lower payment for budget
Removing a co-borrower

How Much Can You Save?

Example Savings Scenario

Original Loan: $300,000 at 6.5% (30-year)

Monthly Payment: $1,896
Total Interest: $382,633

Refinanced Loan: $300,000 at 5.5% (30-year)

New Payment: $1,703
Total Interest: $313,210
Monthly Savings: $193
Total Savings: $69,423

Break-Even Calculation

Closing Costs: $6,000 Monthly Savings: $193 Break-Even: 31 months

If you stay in your home longer than 31 months, refinancing saves money!

The Refinancing Process

1. Rate Analysis (30 minutes)

Review current loan terms
Compare today's rates
Calculate potential savings
Determine break-even point

2. Application (1 hour)

Complete refinance application
Provide income documentation
Authorize credit check
Submit initial paperwork

3. Appraisal (1-2 weeks)

Schedule home appraisal
Prepare home for inspection
Receive valuation report
Confirm loan-to-value ratio

4. Underwriting (2-3 weeks)

Document verification
Income confirmation
Credit review
Conditional approval

5. Closing (1 day)

Review final numbers
Sign loan documents
Pay closing costs
Receive closing disclosure

6. First Payment (30-60 days)

Old loan paid off
Skip 1-2 payments typically
New payment schedule begins
Enjoy lower rate!

Qualification Requirements

Credit Score

620: Minimum for most lenders
680: Better rates available
740+: Best rates offered
Recent History: Clean payment record

Income Requirements

Stable employment preferred
Must support new payment
Can be less than original
All income sources count

Property Requirements

Current appraisal needed
Good condition required
Sufficient equity (varies by loan type)
Any property type eligible

Equity Position

Conventional: 5% minimum equity
FHA: 2.75% minimum
VA: No minimum (IRRRL)
Remove PMI: 20% equity

Types of Rate & Term Refinances

Traditional Refinance

Full documentation
New appraisal required
Any lender available
Most flexible terms

Streamline Options

FHA Streamline: Reduced documentation
VA IRRRL: No appraisal often
HARP Replacement: High LTV options
Lender Programs: Portfolio products

Special Programs

No closing cost options
Appraisal waivers
Income waivers (some cases)
Rapid refinance programs

Costs and Considerations

Typical Closing Costs (2-5%)

Origination fee: 0.5-1%
Appraisal: $400-700
Title insurance: Varies
Recording fees: $100-250
Credit report: $30-50
Processing: $300-500

Ways to Pay

Pay at closing
Finance into loan
Lender credits (higher rate)
No-closing-cost options

Hidden Considerations

Prepayment penalties (rare)
Escrow account changes
Insurance requirements
Property tax adjustments

Making the Right Decision

Calculate Your Break-Even

Total closing costs
Monthly payment savings
Divide costs by savings
Consider time in home

Compare Options

Multiple lender quotes
Different term lengths
Points vs. no points
Closing cost strategies

Long-Term View

Total interest savings
Equity building speed
Financial goals alignment
Future rate predictions

Common Refinancing Mistakes

Mistakes to Avoid

Refinancing too often
Only comparing rates
Ignoring closing costs
Not checking break-even
Taking cash out unnecessarily

Smart Strategies

Time the market reasonably
Improve credit first
Compare total costs
Read all disclosures
Plan for the long term

Special Situations

Removing PMI

Reach 20% equity
Refinance to conventional
Eliminate monthly PMI
Instant payment reduction

Divorce Refinancing

Remove ex-spouse from loan
Qualify individually
Transfer ownership
Fresh start financially

ARM to Fixed Conversion

Lock predictable payment
Avoid rate increases
Long-term stability
Peace of mind

Maximizing Your Refinance

Before Applying

Check credit reports
Pay down credit cards
Avoid new debt
Gather documents

During Process

Respond quickly
Lock rate wisely
Stay employed
Maintain credit

After Closing

Set up autopay
Keep records
Track savings
Consider extra payments

Ready to Lower Your Rate?

Our refinancing experts will help you:

Analyze your current loan
Calculate potential savings
Find competitive rates
Navigate the process

Take the Next Step:

Get Your Quote - See your refinance savings
Calculate Savings - Run the numbers
Check Rates - View today's rates
Schedule Consultation - Discuss options

Frequently Asked Questions

Q: When should I refinance? A: Generally, refinancing makes sense when you can lower your rate by 0.75% or more, plan to stay in the home long enough to recoup closing costs, or want to switch from an ARM to fixed rate.

Q: How much does refinancing cost? A: Closing costs typically range from 2-5% of the loan amount. These can often be rolled into the new loan. We'll calculate your break-even point to ensure refinancing saves you money.

Q: How long does refinancing take? A: Most refinances close in 30-45 days. The timeline depends on appraisal scheduling, documentation, and underwriting. We work to expedite the process whenever possible.

Ready to save money on your mortgage? Our rate and term refinance specialists will help you secure better terms. Start your application or contact us to see how much you can save.