One common reason some homeowners choose to refinance is to reduce their monthly mortgage payment, often by securing a lower interest rate. This may be achieved through a rate and term refinance.

Just as the name sounds, this type of home financing transaction may also be used to reduce the term of a loan, by switching from a 30-year term to a 15-year, for example. This could effectively result in the loan being paid off faster.

Generally, rate and term refinances are more popular in an environment of dropping interest rates, which tends to present better savings opportunities. However, there are some circumstances in which refinancing could be beneficial – and even result in cost savings – even if current interest rates aren’t significantly lower than the original rate on the loan.

If interest rates start to rise, or are projected to rise, homeowners with an adjustable rate mortgage (ARM) may wish to refinance and convert to a fixed rate loan. This may help them avoid potentially substantial rate increases in the future.

Owners who have seen the value of their home increase might also consider refinancing, especially if they currently pay mortgage insurance. In many cases, if an increase in the home’s value pushes the loan-to-value (LTV) below 80%, mortgage insurance will not be required. Homeowners may also be able to refinance to a different loan type (i.e. from FHA to Conventional) and possibly have access to more favorable rates and terms.

One thing a rate and term refinance cannot do is directly put more cash in your pocket. So if your home’s value has increased significantly and you’d like to access any equity you may have, you might consider a cash out refinance. There are also loans specifically intended to finance home renovations if you have improvement projects to pay for.


Curious if refinancing is right for you? Contact a loan officer near you for more information and to begin your application today.

Castle & Cooke Mortgage, LLC® (NMLS #1251) is a leading independent mortgage lender headquartered in Draper, Utah, with locations across the United States.

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