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Rate and Term Refinance — Lower Your Rate or Change Your Loan Term
A rate and term refinance replaces your current mortgage with a new one at a better rate, different term, or both — without taking cash out. It's the most common type of refinance and the simplest way to reduce what you pay each month or over the life of your loan.
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Get Your Rate and Term Refinance Quote
No impact to your credit score.
What Is Rate and Term Refinance?
A rate and term refinance replaces your existing mortgage with a new one where only the interest rate, loan term, or both change. Unlike a cash-out refinance, you don't receive any money at closing — the goal is purely to improve the terms of your loan.
Lower Your Rate
Replace a higher interest rate with a lower one to reduce your monthly payment and the total interest you pay over the life of the loan.
Shorten Your Term
Switch from a 30-year to a 15 or 20-year mortgage to pay off your home faster and save significantly on total interest.
Switch ARM to Fixed
Move from an adjustable-rate mortgage to a fixed rate for predictable payments and protection against future rate increases.
Extend Your Term
Move to a longer term to lower your monthly payment and free up cash flow when your financial situation changes.
Rate and term refinancing is the most common type of refinance. It's straightforward, widely available, and often qualifies for the best rates because lenders consider it lower risk than cash-out refinancing.
Rate Reduction: How Much Can You Save?
Even a small rate reduction can translate into significant savings. Here's what you could save on a $400,000 loan with a 30-year fixed term.
Savings on a $400,000 Loan (30-Year Fixed)
Rate Change
7.5% → 6.5%
Monthly Savings
$268
Annual Savings
$3,216
Lifetime Savings
$96,480
Rate Change
7.0% → 6.25%
Monthly Savings
$195
Annual Savings
$2,340
Lifetime Savings
$70,200
Rate Change
6.5% → 5.75%
Monthly Savings
$191
Annual Savings
$2,292
Lifetime Savings
$68,760
The Power of Small Rate Drops
A 1% rate reduction on a $400,000 loan can save you over $80,000 in interest over 30 years. Even a 0.5% drop can save $40,000+. The key is comparing your potential savings against refinancing costs to find your break-even point.
Term Change Options
Changing your loan term is just as powerful as lowering your rate. Here are the most common term change strategies and what each means for your monthly payment and total cost.
30-Year to 15-Year
Higher monthly payment, but massive interest savings over the life of the loan. You could save tens of thousands in total interest and own your home free and clear in half the time.
30-Year to 20-Year
A moderate increase in monthly payment with significant interest savings. A great middle ground for homeowners who want to pay off faster without doubling their payment.
15-Year to 30-Year
Lower your monthly payment for more breathing room and financial flexibility. Ideal if your circumstances have changed and you need to free up cash flow.
ARM to Fixed Rate
Lock in a stable, predictable rate and eliminate the risk of future rate adjustments. Get peace of mind knowing your payment will never change.
Requirements
To qualify for a rate and term refinance, you will need to meet these standard requirements. The specifics vary depending on the loan program.
Credit Score
- Conventional: 620+ minimum
- FHA: 580+ (3.5% down) or 500+ (10% down)
- VA: No official minimum (most lenders require 620+)
- Higher scores qualify for better rates
Home Equity
- Conventional: At least 3-5% equity (up to 97% LTV)
- FHA: At least 2.25% equity
- VA IRRRL: No equity requirement
- 20%+ equity avoids PMI on conventional
Income & DTI
- Stable, verifiable income
- Debt-to-income ratio typically under 43-50%
- 2 years of employment history preferred
- Self-employed: 2 years of tax returns
Documentation
- Recent pay stubs (last 30 days)
- W-2s or tax returns (last 2 years)
- Bank statements (last 2 months)
- Current mortgage statement
Appraisal
Most rate and term refinances require a new appraisal to confirm your home value supports the loan amount. Some exceptions include:
- FHA Streamline: No appraisal required for existing FHA loans
- VA IRRRL: No appraisal required for existing VA loans
- Conventional: Some lenders offer appraisal waivers for strong applications
Rate and Term vs. Cash-Out
Understanding the difference between rate and term and cash-out refinancing is key to choosing the right option. Here's how they compare side by side.
Choose Rate & Term If:
- ✓You want to lower your monthly payment
- ✓You want to pay off your home faster
- ✓You want to switch from ARM to fixed
- ✓You want the best available interest rate
Choose Cash-Out If:
- ●You need cash for home improvements
- ●You want to consolidate high-interest debt
- ●You have a major expense to cover
- ●You have significant equity built up
The Process
Rate and term refinancing follows a straightforward process. From start to finish, most refinances close in 30-45 days.
Get Rate Quotes
Shop multiple lenders to compare interest rates and closing costs. Even a small rate difference can mean big savings.
Compare Loan Estimates
Review the Loan Estimate from each lender side by side. Pay attention to APR, closing costs, and monthly payment.
Apply
Submit your full application with income documentation, asset statements, and property information.
Pro Tip
Get pre-qualified with 2-3 lenders before applying formally. This lets you compare rates and costs without multiple hard credit pulls — rate-shopping within a 14-day window counts as a single inquiry.
Lock Your Rate
Once you find the right rate, lock it in. Rate locks typically last 30-60 days while processing completes.
Underwriting & Appraisal
Your lender verifies your financials and orders an appraisal to confirm your home value supports the new loan.
Close
Sign the final documents, pay closing costs, and your new loan replaces the old one. Typically 30-45 days start to finish.
Timeline
Most rate and term refinances close in 30-45 days. FHA Streamline and VA IRRRL can close in as little as 2-3 weeks since they require less documentation and no appraisal.
When Rate and Term Makes Sense
Rate and term refinancing isn't always the right move. Here are the scenarios where it makes the most financial sense.
Current rates are significantly lower than your existing rate (0.5%+ difference)
You want to switch from an adjustable-rate mortgage (ARM) to a stable fixed rate
You want to shorten your loan term to pay off your home faster and save on interest
You need a longer term to lower your monthly payment and improve cash flow
You plan to stay in your home long enough to recoup closing costs (past the break-even point)
Your credit score has improved significantly since your original loan, qualifying you for a much better rate
Costs and Considerations
Refinancing isn't free. Understanding the costs involved and calculating your break-even point is essential before making a decision.
Typical Closing Costs (2-5% of Loan Amount)
- Application fee: $300-$500
- Appraisal: $400-$700
- Title search & insurance: $700-$1,500
- Origination fee: 0.5-1% of loan amount
- Recording fees: $50-$250
- Credit report: $25-$50
No-Closing-Cost Option
Some lenders offer "no-closing-cost" refinances where fees are rolled into the loan balance or offset by a slightly higher interest rate. This can make sense if you plan to sell or refinance again within a few years.
Ways to Reduce Costs
- Negotiate lender fees — origination and processing fees are often flexible
- Shop title insurance — ask for reissue rate discounts (saves 20-40%)
- Close late in the month — reduces prepaid interest charges
- Request lender credits — accept a slightly higher rate to offset closing costs
The Break-Even Calculation
Your break-even point tells you how long it takes for your monthly savings to cover refinancing costs. After that point, you're saving money.
Example Break-Even
- Closing costs: $6,000
- Monthly savings: $250
- Break-even: 24 months
If you plan to stay in your home 3+ years, refinancing makes financial sense in this scenario.
Key Considerations
- •Always calculate your break-even point before refinancing
- •Compare at least 3 lender quotes for the best rate
- •Factor in how long you plan to stay in the home
- •Consider whether rates may continue to drop
- •Ask about lender credits to reduce closing costs
Loan Programs for Every Need
We offer a comprehensive range of mortgage products. The right loan depends on your situation, goals, and financial profile — and we'll help you find the perfect fit.
DSCR Loans
Best for: investors qualifying by rental income.
How it works: Approval is based on property cash flow, not personal income.
Key features:
- No personal income docs
- 620+ credit, 20–25% down
- Unlimited properties
Conventional Investment Loans
Best for: strong W-2 investors.
How it works: You qualify using personal income, credit, and assets.
Key features:
- Lowest rates
- 620+ credit (700+ ideal)
- Up to 10 properties
Portfolio Loans Options
Best for: complex or large portfolios.
How it works: Lender creates a custom loan outside standard guidelines.
Key features:
- Flexible underwriting
- Finance 10+ properties
- Relationship-based
Fix & Flip (Bridge Loans)
Best for: renovate-and-sell investors.
How it works: Short-term loan for purchase and rehab, repaid at sale or refi.
Key features:
- Fast closings (7–14 days)
- Based on ARV
- Covers purchase + rehab
Cash-Out Refinance (Investors)
Best for: pulling equity to reinvest.
How it works: Refinance and extract cash from existing property value.
Key features:
- Access up to 75–80% value
- Use funds for any purpose
- DSCR or conventional options
Blanket Loans
Best for: multiple properties.
How it works: One loan covers several properties under one payment.
Key features:
- One loan, one payment
- Finance 5+ properties
- Portfolio consolidation
Short-Term Rental Loans
Best for: Airbnb/VRBO investors.
How it works: Qualify using projected or actual short-term rental income.
Key features:
- DSCR-based
- 20–25% down
- Uses STR income data
Bank Statement Loans
Best for: self-employed borrowers without traditional income docs.
How it works: You qualify using 12–24 months of bank deposits instead of tax returns.
Key features:
- No W-2s or tax returns
- Personal or business statements
- 620+ credit typical
- 10–20% down
Rate and Term Refinance Questions, Answered
Everything you need to know about rate and term refinancing. Can't find your answer? Reach out and we'll help.
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