What’s a Rate-and-Term Refinance?
Rate-and-term refinancing has a lot in common with cash-out refinancing, except that it’s about saving money rather than raising money. Technically, you get a new mortgage with a lower interest rate and/or shorter repayment schedule, to lower the total cost of your mortgage.
Home refinancing interest rates may vary from rates for purchasing a home. For example, you might find that one lender advertises lower rates for refinancing than for purchasing, while another lender advertises the reverse (higher for a refinance, lower for a purchase). Typically, however, loan rates are personalized, via online applications and in-person discussions.
In personalizing, lenders can factor in things like:
- Your credit score.
- Debt-to-income ratio.
- Your home’s loan-to-value ratio (the amount of your loan as a percent of your home’s market value).
- Even how many months’ worth of expenses you have in savings.
As with the cash-out home refinancing, seemingly small differences in fees and interest rates can make a big difference here, too. By one calculation, someone holding a 30-year mortgage for $240,000 with a 7% interest rate could pay about $15,000 less, over the life of the loan, than someone with a 7.25% interest rate.