Rate and Term Refinance

Loan Purposes

RATE TERM REFINANCE

When an existing home loan is replaced by another (a new home loan), what it means is that the individual got a rate and term refinance. A rate and term refinance is the substitution of an existing home loan with a new home loan. The term implies, a new rate which is typically lower and a fresh term comes with the new home loan serving as a substitute.

In a rate and the term change, the balance on the initial loan stays active and has to be repaid. Let’s take an itemized look at what changes when you opt for a rate and term refinance:

• Interest rate (the rate of interest on your mortgage).
• Loan term (the spread of your mortgage payment plan calculated per annum).
• Loan schedule/plan (this is your mortgage payment plan).
• The loan company or lender (the institution which initially approved your mortgage loan).

What does not change when you opt for a rate and term refinance is the Loan amount (the cost of your mortgage; this excludes the interest rate).

Advantages of Rate Term Refinance 

• Reduction of the interest rate, payment, and/or overall term of the mortgage
• Limit of $2,000 cash (varies depending upon State Law)

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10 Times You Should Consider a Rate and Term Refinance

Some circumstances lead you right to the doorstep of a rate and term refinance – these circumstances are:

1. 1. Shopping around and finding a better interest rate from other lenders or home financiers.
   2. You have a better credit score than when you started out, and can help you literally score better interest rates.
   3. Finding a better spread for a mortgage payment – typically one that gives you a long time to pay up versus the initial time frame. The reverse is also the case here because you can opt for a rate and term refinance if you choose to reduce the term of the loan.
   4. You can combine two mortgages. (This might help to make the monthly payments easy on your pocket.
   5. The loan term from the current lender is close to expire and is due for renewal.
   6. The mortgage becomes open to being adjusted per annum, and you prefer a mortgage rate that is fixed over one that fluctuates (who does not prefer this?)
   7. Insurance purposes.
   8. The closing costs for the new home loan can be paid off from the savings obtained from the monthly mortgage. (Often, this is not the case, so it is always best to think long and hard about the closing costs before opting for a rate and term refinance option).
   9. When you can get a rate and term refinance that comes with no closing costs, a lower rate than your initial mortgage, but an interest rate that is higher than the usual rate had you opted to pay for closing costs.
   10. You need to have another party included.