CONVENTIONAL
Rate and Term Refinance

A conventional rate and term refinance is a type of mortgage refinancing where the primary goal is to adjust the interest rate, loan term, or both, without changing the amount of the loan itself. Unlike a cash-out refinance, this option doesn’t allow you to take out extra funds from your home’s equity. Instead, it focuses on improving the financial terms of your existing mortgage, which can lead to lower monthly payments or help you pay off your mortgage faster.

Benefits of a Rate and Term Refinance

Lower Interest Rates
One of the most common reasons homeowners pursue a rate and term refinance is to lower their mortgage interest rate. If current market rates are lower than the rate you initially locked in, refinancing could save you a substantial amount of money over the life of the loan. A lower rate translates to reduced monthly payments, which can free up cash flow for other expenses or savings.

Change the Loan Term
You can also change the length of your mortgage through a rate and term refinance.

For example:

– Shortening the Loan Term: Switching from a 30-year mortgage to a 15-year mortgage allows you to pay off the loan faster, build equity more quickly, and pay significantly less in total interest. The trade-off is that your monthly payments will likely increase.

– Extending the Loan Term: Alternatively, if you need to reduce your monthly payments, you can extend the loan term. For instance, moving from a 15-year to a 30-year mortgage will lower your payments, but you will pay more in interest over time.

Switch from Adjustable-Rate to Fixed-Rate Mortgage
A rate and term refinance can also help you switch from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage (FRM). With an ARM, your interest rate fluctuates after an initial fixed period, potentially leading to higher payments down the road. Refinancing to a fixed-rate loan provides predictable payments throughout the life of the loan, giving you more stability and protection against future interest rate hikes.

Why Consider a Rate and Term Refinance?

– Reduce Monthly Payments
By securing a lower interest rate or extending the loan term, you can reduce your monthly mortgage payments, freeing up more cash for other financial needs or investments.

– Save on Interest
Refinancing to a lower rate or a shorter loan term means paying less in total interest, potentially saving you thousands over the life of the mortgage.

– Pay Off the Loan Faster
If your goal is to become mortgage-free sooner, refinancing to a shorter term allows you to accelerate the repayment process and build equity faster.

– Stable Payments
If you currently have an ARM, refinancing to a fixed-rate mortgage can protect you from rising interest rates and provide a stable, predictable monthly payment for the remainder of the loan. 

Eligibility for a Conventional Rate and Term Refinance
To qualify for a conventional rate and term refinance, lenders typically look at several factors, including your credit score, home equity, debt-to-income ratio, and overall financial stability. The more equity you have and the better your credit score, the more favorable your new loan terms are likely to be.

Is a Rate and Term Refinance Right for You?
A conventional rate and term refinance is an excellent option for homeowners who want to improve their financial situation without borrowing against their home’s equity. If you want to reduce your mortgage payments, secure a lower interest rate, or shorten your loan term, this type of refinance can offer significant benefits and long-term savings.