Rate-and-Term Refinance

A rate-and-term refinance lets you change the term of your original mortgage or interest of your loan, or both. This gives you options to lower your rate, bring in cash to lower your principal loan balance, or pay off your loan faster. This differs from a cash-out loan because you will not receive cash at the close of the loan. A rate-and-term refinance could be a good idea if your situation has changed in any way since you first took out the loan. It might also be a great idea if the market shifts to allow for more favorable interest rates. Read below for more information on why a rate-and-term might be right for you.


​A rate-and-term refinance can deliver a great option if you want to lower your interest rate or your month obligation. If you can afford higher monthly payments, you may choose to refinance to a shorter loan term to pay it off faster. Here are some reasons to utilize a rate-and-term:

  • Rates have dropped and you want to take advantage of lower interest payments.
  • Consolidating a first and purchase money second could save you monthly.
  • Your credit score has increased since you first purchased your home allowing you to secure a better interest rate.
  • You want to eliminate private mortgage insurance (PMI) and the value of your home has increased to no longer require it.

Rate-and-Term Refinance FAQs

How soon can you do a rate-and-term refinance?

This depends on the lender’s policies. Often a general waiting period is at least six months after you take out the original loan. It might be a good idea to wait longer since rate-and-term refinancing can involve closing costs which could off-set the savings you would get from a lower interest rate. You should consider your long-term financial goals and if a refinance aligns with them.

Should I refinance to a longer term?

If you refinance to a longer term, you will be able to lower your monthly payments. This is beneficial if you are looking to save money each month and need the extra cash to pay off other debts or provide financial flexibility. However, if you are able to afford your monthly payments, refinancing to a longer term will only cause you to pay more in interest rates over the life of the loan. In addition, it will cause you to slow down on your equity build-up.

Can you pay off debt with a rate-and-term refinance?

A rate and term refinance can save you money on interest every month. This means you will have extra money available to pay off other debts. If you pay off higher interest debts first, you will save money long term. This type of loan, however, does not result in cash like a cash-out refinance does.

Is it smart to refinance twice in one year?

This all depends on your financial situation and the market. If interest rates drop significantly after your first refinance, it may be a good idea to refinance again. If you need to reduce your monthly payments and save money for other costs, it may be necessary to do another refinance. However you must consider a few negatives such as closing costs, short-term credit impact, and diminished equity building.