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Rate and Term Refinance
Replacing an existing mortgage with a new one to get a better rate or different term, without taking cash out.
Definition
A rate and term refinance replaces your current mortgage with a new loan that has a different interest rate, loan term, or both, without extracting equity. The primary goal is to reduce your monthly payment, shorten your loan term, or switch from an adjustable rate to a fixed rate. Because no cash is taken out, rate-and-term refinances typically qualify for better LTV allowances and lower rates compared to cash-out refinances. Closing costs still apply, so you need to calculate the break-even point to ensure the savings justify the expense. This is a common strategy when interest rates have dropped since your original purchase.
How This Relates to DSCR Loans
DSCR rate-and-term refinances often allow higher LTV (up to 80%) and better pricing than cash-out. They are ideal for investors who locked in a high rate and want to reduce payments.
Related Terms
Cash-Out Refinance
Replacing an existing mortgage with a larger one and taking the difference in cash.
Interest Rate
The percentage charged by a lender for borrowing money, applied to the outstanding loan balance.
Closing Costs
Fees and expenses paid at the closing of a real estate transaction beyond the purchase price.
LTV (Loan-to-Value)
The ratio of a loan amount to the appraised value of the property.
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