Understanding Rate and Term Refinance: A Guide to Lowering Your Mortgage Costs
If you are a homeowner looking to reduce your monthly mortgage payments or adjust the terms of your loan, you may want to think about a rate and term refinance.
Which begs the question… What the heck is it?
A rate and term refinance involves replacing your existing mortgage with a new one that offers more favorable terms, such as a lower interest rate or a different loan duration. This type of refinancing does not involve accessing your home’s equity, but rather focuses on modifying the interest rate and repayment conditions.
During the refinance, your new loan will pay off the remaining balance of your original mortgage, and you will begin making payments on the new loan. This refinancing option can be a smart move if interest rates have dropped significantly since you obtained your original mortgage, as it allows you to take advantage of the lower rates and potentially save a substantial amount of money over the life of your loan.
Rate and Term Refinance – a few things to think about:
- Lower Monthly Payments: By securing a lower interest rate, you might be able to decrease your monthly mortgage payments, freeing up funds for other expenses or savings.
- Shorter Loan Duration: If you’re in a financial position to do so, refinancing to a shorter loan term can help you pay off your mortgage sooner and save on interest payments in the long run.
- Stability and Predictability: Switching from an adjustable-rate mortgage to a fixed-rate mortgage through a rate and term refinance can provide you with stability, protecting you from potential future interest rate hikes.
- Closing Costs: It’s important to consider the closing costs associated with a rate and term refinance. These costs may include application fees, appraisal fees, title search fees, and more. Be sure to weigh the potential savings against the upfront expenses.
- Credit Requirements: Just like with any mortgage, your creditworthiness will play a crucial role in qualifying for a rate and term refinance. Lenders will review your credit history, income, and other factors to determine your eligibility.
If you’re interested in discussing your financial situation and seeing whether or not a rate and term refinance is right for you, our team at United Faith Mortgage is here to offer no-pressure help. Just give us a call.
