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Refinance

Rate and term refinance.

The short version
  • It changes your rate, your term, or both, but never gives you cash at closing.
  • Breakeven = closing costs ÷ monthly savings, in months.
  • Refinance only when you plan to stay past breakeven, otherwise the costs eat the savings.
  • Closing costs typically run 2% to 5% of the loan amount.
  • Resetting a 30-year clock lowers the payment but can raise total lifetime interest.
Refinance Decision Guide PDF cover

Refinance Decision Guide

Includes a hypothetical 29-month break-even example, 25-year vs. 30-year loan comparison, Loan Estimate field guide and a fillable quote sheet.

Download free guide (PDF)

Free fillable PDF. No email or signup required. Educational information, not a loan offer or personalized advice.

When this typically makes sense

The clean cases are when the new rate is meaningfully lower than your current rate, when you want to shorten the term to save on lifetime interest, or when you want to remove mortgage insurance now that you have built equity. Sometimes a rate and term is also used to switch out of an adjustable loan into a fixed one for predictability.

How to think about breakeven

Add up the closing costs of the new loan. Divide that by your expected monthly savings. The result is roughly the number of months it takes to recoup the cost. If you plan to stay in the home well past that point, the math usually works. If you are likely to sell or refinance again before then, it probably does not.

Resetting a 30-year clock can lower the payment but increase the total interest you pay over the life of the loan. Be clear on which goal matters most to you before you sign.

What to bring

A current mortgage statement, your most recent pay stubs, two years of tax returns, and recent bank statements are usually enough to start. Your loan officer will walk through your current rate, the new options available, and the breakeven math before you commit to anything.

More context

A rate and term refinance replaces your current mortgage with a new one to change the rate, the term, or both. You do not take cash out. The decision is almost always a math question: does the monthly savings, given the cost of the new loan, pay back fast enough to be worth doing?

Frequently asked questions

What is a rate and term refinance?
A rate and term refinance pays off your current mortgage with a new one that changes the interest rate, the loan term, or both, without taking any cash out. It is the most common form of refinance and the cheapest to underwrite.
How much do rates need to drop to make refinancing worth it?
There is no universal threshold. The right number is whatever makes the breakeven, closing costs divided by monthly savings, short enough relative to how long you plan to stay in the home. On a large balance, a quarter-point drop can be enough; on a small balance, a full point may not be.
How long does a rate and term refinance take?
Plan on 30 to 45 days from application to funding. The timeline depends on appraisal turn time, how quickly you return documents, and how clean your file is.
Will refinancing reset my loan term?
Yes by default, a new 30-year refinance starts a new 30-year clock. You can avoid that by choosing a shorter term (20, 15, or 10 years) or by continuing to make extra principal payments equal to your old payment.
Can I refinance to remove mortgage insurance?
Often, yes. If your home value has appreciated and you now have at least 20% equity, refinancing into a conventional loan can drop monthly mortgage insurance entirely, sometimes saving more than a rate change would.
Is the closing cost worth paying out of pocket?
As an illustrative example only (not a quote or offer), paying closing costs out of pocket generally produces a lower rate and a faster breakeven, while rolling costs into the loan or accepting a lender credit generally raises the rate slightly. Run both scenarios with your loan officer and pick the one whose breakeven you are confident you will reach.

Related glossary terms

Refinance Decision Guide PDF cover

Refinance Decision Guide

Includes a hypothetical 29-month break-even example, 25-year vs. 30-year loan comparison, Loan Estimate field guide and a fillable quote sheet.

Download free guide (PDF)

Free fillable PDF. No email or signup required. Educational information, not a loan offer or personalized advice.

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