Rate and Term Refinance

By Michael George · NMLS #2280851

Updated October 11, 2026

A rate and term refinance replaces an existing mortgage primarily to change the interest rate, repayment term, or loan structure. It is generally distinguished from a cash-out refinance, which is used to borrow against equity and receive proceeds. Program definitions and allowances for incidental cash at closing differ; the label alone does not establish eligibility. Federal Reserve refinancing guide

Payment savings and total cost

A lower rate may reduce the payment or interest cost. A longer term can also lower the payment while increasing the time in debt and total interest. A shorter term can increase the payment. Compare closing costs, the new balance, payment savings, remaining term, and expected time in the property before deciding. Federal Reserve refinancing guide

Requirements depend on the program

There is no universal 620 credit-score minimum or 20% equity requirement for every rate and term refinance. Underwriting, appraisal, payment-history, and loan-to-value requirements depend on the loan program and lender.

For example, VA generally does not require an appraisal or credit underwriting for an IRRRL, although exceptions and lender requirements apply. It requires an existing VA loan and has its own benefit, recoupment, and seasoning rules. FHA Streamline refinancing has different rules, including credit-qualifying and non-credit-qualifying options. VA IRRRL information; HUD FHA Streamline information

Closing costs and disclosures

Costs vary; a percentage range is not a universal program rule. Whether costs can be financed also depends on the program. For example, VA IRRRLs can include allowable costs, while FHA does not allow Streamline closing costs to be added to the new first-mortgage amount. Lender credits may cover costs in exchange for a higher rate. Compare the Loan Estimate and Closing Disclosure. VA IRRRL overview; HUD FHA Streamline information; CFPB Loan Estimate explainer

Right of rescission

For a covered consumer refinance secured by the borrower's principal dwelling, the borrower generally has until midnight of the third business day after the latest of consummation, delivery of the rescission notice, or delivery of the material disclosures to cancel. For this purpose, business days exclude Sundays and federal legal holidays. Exceptions include certain same-creditor refinances; a second home is not a principal dwelling for this rule. Do not assume every refinance has a cancellation period. Regulation Z, 12 CFR 1026.23

Related concepts: fixed-rate mortgages, adjustable-rate mortgages, and closing costs.