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- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
About Rate and Term Refinance
In today’s mortgage market, refinancing is something that many homeowners are looking to get done. Especially, when the rates are at their historic lows.
This is a great opportunity to get into a comfortable term with the lowest interest rates and save money in the process.
In this post, we will understand what is rate and term refinance.
What is a Refinance?
A refinance is a process where the homeowner replaces his current mortgage with another one with an intent to either lower interest rate, get a cash-out from equity or, change the lender.
The refinancing terms and conditions may vary from lender to lender. There are also multiple programs to choose from depending on your financial situation.
What is Rate and Term Refinance?
It is simply what it says.
A rate and term refinance is a process in which the homeowner plans to refinance his current mortgage with an intent to either change the rate, change the tenure, or, both.
For example, if you are paying 3.25% on a 15-year mortgage, and with the new refinance you are getting 2.125% with the 15 years mortgage, this would be a rate change.
If your new refinance rate is 2.125% on a 10-year mortgage, this means you are changing both rate and term.
Interest rates depend on the current mortgage market and your eligibility. However, the mortgage term is something that you can choose.
If you want to make sure you need to pay your mortgage quicker, and you have a good enough income, you can choose a 10 or 15 years mortgage while doing a rate and term refinance.
If you want to keep your monthly payments low and manage your monthly expenses, you can choose a 30-year mortgage during the rate and term refinance.
The thing to remember is that if you choose to go for higher tenure, the interest rate that you would get on your rate and term refinance would be higher.
For example, the interest rate on a 15-year rate and term refinance would be lower than a 30-year one.
When to Get a Rate and Term Refinance?
1 - Lower Interest Rates
Most of the homeowners refinance when they see that the interest rates are low to ensure they get the advantage of those low-interest rates and save money.
Just like most recent times, the number of applications for refinancing in the country has skyrocketed all thanks to the low-interest rates.
2 - Change from Adjustable to Fixed
Many homeowners choose to get a rate and term refinance to convert their adjustable-rate mortgage to a fixed-rate mortgage.
Looking at the current market conditions many homeowners are converting their ARM to a fixed one.
3 - Change of Tenure
It would make sense to change the term only if you are getting a low-interest-rate benefit and only if it makes sense to lower the tenure after considering the closing costs associated with the rate and term refinance.
4 - Change of Lender
Getting a rate and term refinance done only to change the lender is a very rare case.
However, you may have some service issues with your current lender and by recommendation, you might want to change your mortgage company.
5 - Remove Mortgage Insurance
When you purchased your home you didn’t make 20% down on your home. This will mean that you would be paying mortgage insurance along with your mortgage payment.
Once you have 20% equity on your home, you can choose rate and term refinance to get rid of that hefty mortgage insurance payments.
Conclusion
Rate and term refinance are some of the most common forms of refinancing. With refinance, there are always closing costs involved.
Please make sure you do your math before you refinance.
Also, you may want to shop before you select a lender to refinance and do a fair refinance offer comparison which will benefit you to get the best deal in the current competitive market.
