Rate And Term Refinance
Lower Your Payment
As an established homeowner, you can improve your financial security by refinancing to a lower payment
Shorten Your Loan Term
Refinance into a shorter term, so you can pay off your mortgage sooner.
Rate And Term Refinance: The Basics
A rate and term refinance is a type of mortgage refinancing that allows you to change the terms of your current loan and replace them with terms that are more favorable for you. You get a new loan, pay off your old mortgage and then make payments toward your new loan when you refinance. A rate and term refinance can give you more or less time to pay off your loan, a lower interest rate or a different monthly payment. Some lenders refer to rate and term refinances as regular refinances.
Reasons To Do A Rate And Term Refinance
Homeowners can take advantage of a number of benefits when they refinance. These include:
Lowering your rate: Are current interest rates lower than when you got your loan? You may be able to get a lower rate. You might also qualify for a lower interest rate if you have a better credit score or less debt now than when you took your original mortgage. Taking an interest rate that’s even a fraction of a percentage lower can help you save thousands of dollars over the course of your loan. This means that it’s often beneficial to refinance whenever you can get a lower interest rate than what you’re paying currently.
Reducing your payment: Your monthly payment goes down when you refinance a mortgage loan to a longer term. This is because you give yourself more time to pay off your loan and make more overall payments. Refinancing to a longer term and reducing your monthly payment can help you avoid foreclosure if you’re having trouble making your payments. Keep in mind that refinancing to reduce your payment means you’ll end up paying more in interest over time.
Changing your term length: You can also refinance your mortgage loan to a shorter term. Doing so increases your monthly payment, but you end up paying less in interest over the course of your loan. This can mean thousands (or even tens of thousands) of dollars saved by the time your loan matures. Are you now earning more in income now than when you got your loan? Refinancing to a shorter term can help you own your home sooner.
How To Get A Rate And Term Refinance
Applying for a refinance is similar to applying for a first mortgage loan. You’ll submit an application to your lender along with some financial documentation. Your lender will then schedule underwriting, an appraisal and your closing meeting.
Do you think a rate and term refinance might be right for you? Here’s more information on what you can expect to do when you get your new loan.
Apply For A Refinance
The first step in any refinance is to apply with your lender of choice. Research lenders in your area and consider current mortgage interest rates. Submit an application to your lender and specify that you want to refinance your rate or term.
Your lender will ask you for a few important financial documents when you apply for your refinance, including your:
Two most recent pay stubs
Two most recent bank statements
Two most recent W-2s
You may need to provide more documentation if you’re self-employed. Have your paperwork in order before you apply for a faster refinance.
Your lender will begin the underwriting process once you submit your application. Your lender verifies your income during underwriting and makes sure that you qualify for a refinance. Respond to all lender inquiries during this time to help keep your refinance on track.
Summary
A rate and term refinance can allow you to replace your current home loan with a new one. You can change your mortgage term or your interest rate with a rate and term refinance. Rate and term refinances can help you pay less for your loan over time, lower your monthly payments or pay off your loan faster. Rate and term refinances are different from cash-out refinances; the latter allows you to take cash from your home equity in exchange for a higher principal. You must meet your lender’s income, debt and credit score requirements before you qualify for a refinance.
Applying for a refinance is similar to applying for your initial home loan. You’ll first submit an application to your lender with your financial documents. You’ll have the opportunity to lock your interest rate after you apply. Lastly, your lender will schedule your underwriting, appraisal and closing processes.