Lower your mortgage rate: Rate and term refinancing

Lowering your mortgage rate

If you bought your home when rates were higher, or if your credit has improved since you got your mortgage, refinancing to a lower rate can save you real money. This is called a rate and term refinance, and it's the most straightforward type of refinancing.

When does refinancing make sense?

The old rule of thumb was to refinance if you can drop your rate by 1% or more. But that's oversimplified. The real question is: will the savings outweigh the costs before you sell or refinance again?

Here's what actually matters:

The rate difference: A 0.5% reduction can save you $100+ per month on a $400,000 loan. Over 5 years, that's $6,000+.

How long you'll stay: If you're selling in 2 years, the math is tighter. Staying 5+ years? The savings add up.

Closing costs: Typically 2-4% of the loan amount. You need to recoup these costs through your monthly savings.

Your current loan balance: The larger your loan, the more impact even small rate reductions have.

The break-even calculation

Let's run a quick example:

• Current rate: 7.5%
• New rate: 6.5%
• Loan amount: $400,000
• Monthly savings: ~$267
• Closing costs: $8,000
• Break-even: 30 months

In this scenario, you'd start saving money after 2.5 years. If you plan to stay longer, refinancing makes sense.

We'll run these numbers for your specific situation so you know exactly where you stand.

What you need to refinance

Equity: Most lenders require at least 20% equity for the best rates. With less equity, you may need mortgage insurance or accept a slightly higher rate.

Credit score: The higher your score, the better your rate. But even with moderate credit (660+), refinancing can still make sense if your current rate is high enough.

Income verification: You'll need to prove you can afford the new payment, just like when you bought the home.

Appraisal: In most cases, the lender will order an appraisal to confirm your home's current value.

Refinance options to consider

Shorten your term: If you're 5 years into a 30-year mortgage, refinancing to a 20-year loan at a lower rate could help you pay off your home faster without increasing your payment much.

Extend your term: Sometimes people want to lower their monthly payment by extending their term, even if the rate stays similar. This reduces cash flow pressure, though you'll pay more interest over time.

Same term, lower rate: The classic refinance. Keep your current term (or something close to it) and just grab a better rate.

What about no-closing-cost refinances?

Some lenders offer "no closing cost" refinances where they roll the costs into your rate. This can work if:

• You're not planning to stay long-term
• You want to lower your rate without bringing cash to closing
• The higher rate still saves you money vs. your current rate

The trade-off is a slightly higher rate than you'd get paying closing costs upfront. We can show you both options and help you decide.

The refinance process

1. Get a rate quote: We'll pull your credit and give you actual numbers to evaluate
2. Lock your rate: Once you decide to proceed, we lock in your rate
3. Submit documentation: Income, assets, and property info
4. Appraisal: The lender orders an appraisal of your home
5. Underwriting: Review and approval of your application
6. Closing: Sign papers, typically 30-45 days from application

Is now a good time to refinance?

Rates fluctuate, and timing the market is nearly impossible. What matters is whether refinancing improves your situation today, not whether rates might drop further tomorrow.

If your current rate is significantly above market rates, refinancing now starts saving you money immediately. You can always refinance again if rates drop more.

See what you could save

Let's look at your specific numbers. Get a refinance quote to see your options, or schedule a call to discuss whether refinancing makes sense for your situation.