A mortgage refinance helps homeowners get the most out of their investment by replacing a their existing mortgage agreement with a new, more favorable one. A Rate and Term Refinance works exactly as it sounds, giving homeowners the opportunity to take advantage of a rate drop by trading their current rate for a new interest rate or adjust the term (length) of the loan. By adjusting the term of their loan, homeowners can pay off their mortgage faster and, in doing so, lower the amount of interest they’ll pay on the loan. As the name suggests, obtaining a lower rate or adjusting the term of a loan are the most common uses of this type of refinance, but there are some other lesser-known uses for this option.
A couple of other reasons to do a Rate and Term Refinance are to change the mortgage product or cut out mortgage insurance. Sometimes people who are in a loan product that they don’t prefer, so they refinance into a product that is more suitable to their needs. Another reason to refinance is to get out of paying monthly mortgage insurance. If your property value has increased since you purchased it and you now have more than 20% equity in your home, you can refinance and cut out the pesky mortgage insurance!