Are interest rates lower now than when you originally got your mortgage?

Maybe you want to change your term or lower your payment or payoff your loan faster.  A rate and term mortgage could be your key to both.

What is a Rate and Term Refinance?

A rate and term refinance is a type of mortgage loan refinancing that results in a lower interest rate or loan term, or a combination of both.

Savings can be achieved by replacing the current mortgage with a new mortgage at a lower interest rate or shorter term.

A rate and term refinance is primarily driven by a drop in market interest rates in order to lower monthly payments.  In contrast, cash-out refinance activity is usually driven by increasing home values and by homeowners seeking to tap into their home equity.

What is required for a Rate and Term Refinance?

To qualify for a conventional loan, all loan applicants must meet certain requirements, including:

• Good work history
• Verifiable income
• Credit score of 620+
• Minimum equity for loan program

How much can you get with a Rate & Term Refinance?

The amount you can borrow depends on your home’s value and loan program.  With conventional loans, the maximum amount you can borrow is 97% of the home’s current market value.  FHA is the same as conventional while VA allows you to borrow up to 100% of your home’s current market value.

Benefits of a Rate and Term Refinance

Let’s take a look at some of the most common reasons homeowners complete a rate and term refiannce.

Lower your interest rate

If current interest rates are lower than when you first got your loan, a rate and term refinance might be a good choice.  You might also benefit from a lower interest rate if you have a better credit score or more equity now than when you got your original mortgage.  Even a small change in the interest rate can make a difference in the monthly payment and lifetime cost of the loan.

Reduce your monthly mortgage payment

Refinancing to a longer term and reducing your monthly payment is a common use of a rate and term refinance.  By extending the term, you will have a lower monthly payment that may be more manageable.  Keep in mind that refinancing to a longer term could mean that you will end up paying more interest over the life of the loan.

Reduce the length of your mortgage

You can also refinance your mortgage loan to a shorter term, such as refinancing to a 15-year mortgage to a 30-year mortgage.  This increases the monthly payment but you will pay the loan off much faster.

For conventional loans, you can pick your new loan term anywhere between 8-30 years.

Change your loan type

With a rate and term refinance, you can change the type of loan that you have.  For example, you may be able to change from an adjustable rate mortgage (ARM) into a fixed rate mortgage to provide more payment certainty.  You might also switch from and FHA loan to a conventional loan to drop mortgage insurance.

Ready to get started?

If you are interested in learning more about cash out refinance loans, we are here to answer all of your questions.  We will walk through the numbers and the process, from application to closing.