What Is A Rate-And-Term Refinance?

A rate-and-term refinance replaces your existing mortgage with a new one to change your interest rate, your loan term, or both.

Homeowners usually use this type of refinance to lower their monthly payment, reduce total interest, pay off the loan faster, or switch from an adjustable-rate mortgage to a fixed-rate loan.

Unlike a cash-out refinance, a rate-and-term refinance is not meant to turn home equity into spending money.

In conforming lending, it is sometimes called a limited cash-out refinance because the borrower may be allowed to receive a small amount of cash back at closing within program limits. Alternatively, it may be called a no cash-out refinance.

Rate-And-Term Refinance At A Glance

What Is A Rate-And-Term Refinance?

A rate-and-term refinance is a new mortgage that pays off your current mortgage and replaces it with updated terms.

The two most common changes are:

• a lower or different interest rate
  
  
• a shorter or longer repayment term

This refinance can also be used to switch from an adjustable-rate mortgage to a fixed-rate loan, move from a 30-year term to a 15-year term, refinancing to remove PMI or MIP, or to extend the loan term to reduce monthly payments.

For conforming loans, Fannie Mae treats many of these transactions as limited cash-out refinances, which means the borrower is not taking meaningful equity out of the property and can receive only a small amount of cash back within guideline limits.

Refinance Break-Even Calculator

Break-even analysis tells you how long it will take for your monthly savings to cover your refinance costs.

You can use our calculator to get an idea of your break-even timing.

How A Rate-And-Term Refinance Works

The process usually follows the same general steps as a purchase mortgage.

1. Apply And Compare Loan Options

You submit an application and provide documentation for income, assets, debts, and employment.

2. Receive Loan Estimates

The lender gives you a Loan Estimate that outlines the projected rate, monthly payment, and closing costs. CFPB recommends comparing Loan Estimates from multiple lenders before choosing a refinance.

3. Appraisal Or Waiver Review

The lender may require a new appraisal to confirm your home’s value. Some files may qualify for an appraisal waiver depending on the loan program and automated underwriting findings.

4. Underwriting

The underwriter reviews your full file, including credit, income, assets, and property information.

5. Closing

At closing, the new mortgage pays off the old one. You then begin making payments under the new loan terms.

Rate-And-Term Refinance Vs. Cash-Out Refinance

A rate-and-term refinance is focused on improving your mortgage. A cash-out refinance is focused on pulling equity out of the property.

For a more in-depth comparison, check out our guide on rate-and-term vs. cash-out refinances.

Fannie Mae distinguishes limited cash-out refinance transactions from cash-out refinance transactions based on how the proceeds are used and how much cash the borrower receives.

Reasons To Choose A Rate-And-Term Refinance

A rate-and-term refinance may make sense if you want to:

• lower your monthly mortgage payment
  
  
• reduce your interest rate
  
  
• pay off the mortgage faster
  
  
• switch from an ARM to a fixed-rate loan
  
  
• improve long-term loan stability without taking cash out
  

This option is usually the cleaner fit for borrowers who want better loan economics rather than equity access.

Costs And Qualification Considerations

Refinancing usually includes lender fees, title costs, and sometimes appraisal costs.

Exact costs vary, so borrowers should focus on the Loan Estimate and total break-even math rather than one flat dollar estimate. CFPB specifically emphasizes comparing official mortgage disclosures carefully.

Important qualification factors usually include your credit score, debt-to-income ratio, loan-to-value ratio, income and employment documentation, and your property value.

Compared with cash-out refinancing, rate-and-term refinances generally have easier qualification and better pricing because the borrower is not materially increasing the mortgage balance.

The Bottom Line

A rate-and-term refinance replaces your existing mortgage with a new one. It can be used to lower your rate, accelerate your repayment, or change other loan terms.

Frequently Asked Questions

What Is A Rate-And-Term Refinance?

It is a refinance that replaces your current mortgage to change the interest rate, the term, or both, without meaningfully taking cash out.

How Is It Different From A Cash-Out Refinance?

A cash-out refinance increases the loan amount so you can withdraw equity. A rate-and-term refinance is meant to improve the loan itself.

Can I Roll Closing Costs Into The New Loan?

Often yes, within program rules. That can slightly increase the new balance.

Will My Monthly Payment Always Go Down?

No. Payments can rise if you shorten the loan term or choose a different rate structure.

Do I Need An Appraisal?

Often yes, but some files may qualify for an appraisal waiver depending on program rules and underwriting.

How Long Does A Refinance Usually Take?

Many refinances close within a few weeks, though timing depends on appraisal, underwriting, and document turnaround.

Can I Switch From An ARM To A Fixed-Rate Loan?

Yes. That is one of the most common reasons homeowners use a rate-and-term refinance.

What Is A Limited Cash-Out Refinance?

It is the conforming-loan version of a rate-and-term refinance where the borrower may receive only a small amount of cash back within program limits.