Lower Your Rate.Keep Your Equity.
A rate-and-term refinance restructures your mortgage for better terms—without cashing out a penny.
Refinancing Explained
Before diving into the details, watch this comprehensive breakdown of how mortgage refinancing works and when it makes sense.
Rate-and-term changes your rate or loan length—no cash out
Calculate your break-even point before deciding
Compare at least 3 lenders to find the best deal
Video from independent financial educator, not a competing lender.
What is a Rate & Term Refinance?
A rate-and-term refinance replaces your existing mortgage with a new loan that has a different interest rate, term (length), or both—without giving you any cash. It's the most common type of refinance, used when homeowners want to save money or pay off their home faster.
Official Definition (24 CFR 1005.427)
"Refinancing an existing mortgage for the purpose of changing the interest rate or term, or both, of a loan without advancing new funds on the loan, with the exception of allowable closing costs."
In plain English: You're trading your current mortgage for a new one with better terms. Your loan balance stays roughly the same (you can roll closing costs in), but your rate, payment, or payoff timeline changes.
Rate & Term vs. Cash-Out Refinance
| Feature | Rate & Term Refinance | Cash-Out Refinance |
|---|---|---|
| Purpose | Lower rate, shorter term, or both | Access home equity as cash |
| Loan Amount | Same as current balance (+ closing costs) | Higher than current balance |
| Cash Received | None (or minimal) | Equity converted to cash |
| Interest Rates | Typically lower | Usually 0.125-0.25% higher |
| LTV Requirements | Up to 97% (conventional) | Usually max 80% |
| Approval Difficulty | Generally easier | More stringent |
| Best For | Saving money, paying off faster | Large expenses, debt consolidation |
Need cash from your equity? Learn about cash-out refinancing
Three Reasons to Refinance
According to the CFPB, refinancing makes sense when you can meet one of these financial goals.
Goal 1: Lower Your Interest Rate
When interest rates drop, refinancing to a lower rate can significantly reduce your monthly payment. But there's a tradeoff: you're signing up for a new loan term, which could mean paying more in total interest.
Pro tip: Ask about a custom term matching your remaining years (e.g., 22 years instead of 30).
Example Scenario
When NOT to Refinance
Refinancing isn't always the right move. The CFPB warns against refinancing in these situations.
Planning to Move Soon?
If you'll sell within 2-3 years, you may not recoup closing costs.
Calculate your break-even point. If it's longer than you'll stay, don't refinance.
Home Value Has Dropped?
If you owe more than your home is worth, options are limited.
Check your loan-to-value ratio. Lenders typically require at least 3-20% equity.
Credit Score Declined?
A lower credit score means worse rates—or no approval at all.
If your score dropped significantly, you might not get better terms than you have.
Prepayment Penalty?
Some mortgages charge fees if you pay off early.
Check your loan documents. Add any penalty to your break-even calculation.
Far Into Your Current Loan?
Restarting a 30-year term when you're 10 years in costs more overall.
If you're mostly paying principal now, a new loan restarts the interest-heavy years.
Savings Are Minimal?
A 0.25% rate drop on a small balance may not be worth the hassle.
Generally, a 0.5-1%+ rate reduction is the minimum threshold to consider.
The Break-Even Question
Closing Costs ÷ Monthly Savings = Months to Break Even
Example: $6,000 in closing costs ÷ $200/month savings = 30 months to break even. If you'll stay longer than 30 months, refinancing likely makes sense.
Learn more about break-even analysisHow Refinancing Works
Refinancing follows a similar process to your original mortgage—just without the home search.
Shop & Compare
Get quotes from 3+ lenders. Compare rates, fees, and total costs.
Apply
Submit application, pay for appraisal, provide documents.
Lock Your Rate
Lock in your rate (typically 30-60 days). Ask about float-down options.
Underwriting
Lender verifies income, assets, property value. Respond quickly to requests.
Close
Sign documents, pay closing costs. New loan pays off old loan.
Typical Timeline
Average closing time: 30-45 days. Can be faster with streamlined programs.
What You'll Need
Credit Score Requirements
Equity / LTV Requirements
Documents to Gather
Income
- Pay stubs (30 days)
- W-2s (2 years)
- Tax returns (2 years)
Assets
- Bank statements (2-3 months)
- Investment statements
- Retirement accounts
Property
- Current mortgage statement
- Homeowners insurance
- Property tax info
Identity
- Driver's license
- Social Security number
- Employment verification
Self-employed? You'll also need business tax returns and profit/loss statements. See complete document checklist
Frequently Asked Questions
Could You Save with aRate & Term Refinance?
Compare today's rates to your current mortgage. We'll show you potential savings—no obligation, no credit impact to check.
Licensed in Arizona | NMLS #2280851
Related Resources
Cash-Out Refinance
Access your home equity with a new mortgage. Compare to rate-and-term.
Break-Even Calculator
Calculate when refinancing pays off based on costs and savings.
All Refinance Options
Explore all refinance types: rate-term, cash-out, streamline, and more.
Arizona Rate & Term Refinance
Local Arizona loan limits and pre-approval for your rate-and-term refinance.