If you bought your home when rates were higher, or your credit score has improved significantly, a rate-and-term refinance could save you hundreds per month.
What Is a Rate-and-Term Refinance?
Unlike a cash-out refinance, a rate-and-term refinance only changes your interest rate, your loan term, or both — no cash changes hands (beyond closing costs, which can often be rolled in).
It’s the simplest refinance and typically has the lowest closing costs of any refinance option.
When It Makes Sense
Rate drop scenario: You bought in 2023 at 7.5%. Rates drop to 6.25%. On a $500,000 loan, that’s roughly $400/month in savings — before you’ve even changed your term.
Credit improvement scenario: You bought with a 640 credit score and a higher rate. Three years later, your score is 760. Refinancing could save you 0.5–1.0% in interest rate.
Shortening your term: Going from a 30-year to a 15-year loan at a lower rate. Your payment might go up slightly, but you’ll pay off your home faster and save dramatically on total interest.
The Break-Even Calculation
Closing costs on a rate-and-term refinance typically run 1–2% of the loan balance. To find your break-even:
Monthly savings ÷ Closing costs = Break-even months
If you save $300/month and closing costs are $6,000, you break even in 20 months. If you plan to stay at least that long, it’s worth doing.
Common Questions
Can I roll closing costs into the loan? Yes, in most cases — though this slightly increases your loan balance and monthly payment.
What credit score do I need? Most conventional loans require 620+. For the best rates, aim for 740+.
How often can I refinance? There’s no legal limit, though some loans have prepayment penalties. We can check your current loan terms.
Refinancing at the right time can be one of the most powerful financial moves a homeowner makes. We have helped clients save over $50,000 in interest over the life of their loan with a single refinance.