Interest Rates and Fees
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What Is a Rate-and-Term Refinance?
When you refinance an existing mortgage in order to change interest and/or term of the mortgage without advancing new money on the loan it is known as Rate-and-term refinance. This varies from cash-out refinance, where there’s advancement of new money on the loan. Rate-and-term refinances hold lower interest rates compared to cash-out refinances.
Understanding Rate-and-Term Refinance
Rate-and-term refinancing is mainly driven by lower interest rates, whereas cash-out refinancing is driven by rising home values. Since there are pros and cons associated with both rate-and-term and cash-out refinancing, the borrower must study them thoroughly before making any final decision.
Who should go for Rate-and-Term Refinance?
There are various reasons why homeowners decide to refinance and each option might indicate that one refinance type or other may make more sense. Before opting for a new home loan, think about your financial goals and consider these guidelines on rate and term refinance.
- When you want to pay off your loan faster, see if you can afford the payments on a short-term loan.
- When you’re focused on reducing your monthly mortgage payments, a lower rate or term longer mortgage might be a better option, so check out mortgage rates as of today and use a mortgage calculator to calculate your savings.
- A rate-and-term refinance works best for borrowers who want to take advantage of lower interest rates to reduce payments or to reduce the total amount of interest to be paid on mortgages. This type of refinancing is also valuable for homeowners who want to pay off mortgages completely before a certain date, such as retirement or when their children go to college.
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