A refinance that changes your interest rate, loan term, or both — but you don't take any cash out. The most common reason people refinance.
A rate-and-term refinance does exactly what it sounds like: it changes your interest rate, your loan term, or both, without giving you any cash back beyond minor closing-cost adjustments.
It's the cleanest, lowest-cost refinance. Because you're not pulling equity out, lenders consider it lower risk — which often means slightly better rates than a cash-out refinance.
Common scenarios: rates have dropped 1%+ since you bought, so refinancing lowers your payment; you started on a 30-year fixed but now want to shift to a 15-year to pay off faster; you have an ARM and want to lock in a fixed rate before adjustments hit.
Example
Your $295K balance is at 7.5% with 27 years left. You refinance to 6.25% on a new 30-year. Closing costs: $6,500. Monthly payment drops from $2,063 to $1,815 — savings of $248/month. Break-even: 26 months.
Also known as
rate-term refi, no-cash-out refinance