Rate & Term Refinance
A Rate & Term Refinance Loan allows homeowners to replace their existing mortgage with a new one featuring improved terms-such as a lower interest rate, a different loan term, or both-without taking cash out from their home equity. This option is ideal for borrowers who want to reduce their monthly payments, pay off their mortgage faster, or both, while keeping their mortgage balance essentially the same.
Key Features
Replace your current mortgage with a new loan at a different interest rate and/or term
Lower your monthly payment by securing a lower interest rate or extending your loan term
Pay off your mortgage faster by shortening your loan term, often resulting in significant interest savings over the life of the loan
No cash-out option-focuses solely on improving your loan terms, not extracting home equity
May allow removal of private mortgage insurance (PMI) if you have at least 20% equity in your home
Eligibility Requirements:
Sufficient home equity-typically at least 3% for conventional loans; 20% equity may be required to eliminate PMI
Minimum credit score, generally starting at 620 for conventional loans (requirements may vary by loan type and lender)
Acceptable debt-to-income (DTI) ratio, usually 36%–50% depending on the loan program
Proof of income, employment, and assets, similar to your original mortgage application
Ability to pay closing costs, which typically range from 2% to 5% of the loan amount (these may sometimes be rolled into the new loan)
