What is a rate-and-term refinance?

A rate-and-term refinance replaces your existing mortgage with a new loan that has a different interest rate, loan term, or both — without taking any additional cash out. The goal is usually to lower your monthly payment, reduce your interest rate, switch from an ARM to a fixed rate, or shorten your loan term. You can roll closing costs into the new loan or pay them upfront. The break-even analysis is critical: divide total closing costs by your monthly savings to determine how many months it takes to recoup the costs. If you plan to move before breaking even, refinancing may not be financially beneficial.