Rate and term refinance allow homeowners to replace their existing mortgage with a new one with different terms, typically a lower interest rate and/or a different loan duration. The goal of rate and term refinance is to reduce monthly mortgage payments, lower the total interest paid over the life of the loan or both.
There are several benefits of rate and term refinance, including:
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Lower monthly mortgage payments: By obtaining a lower interest rate or extending the loan term, homeowners can reduce their monthly mortgage payments and free up more money for other expenses.
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Lower total interest paid: With a lower interest rate or shorter loan term, homeowners can save thousands of dollars in interest payments over the life of the loan.
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Improved cash flow: By reducing monthly mortgage payments, homeowners can improve their cash flow and have more money to spend on other priorities.
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Potential to build equity faster: If a homeowner chooses to refinance into a shorter loan term, they can pay off the mortgage quicker and build equity in their home faster.
Whether rate and term refinance is right depends on your circumstances, goals, and financial situation. If you want to reduce your monthly mortgage payments or lower the total amount of interest paid over the life of your loan, rate, and term refinance may be a good option.
If you decide that rate and term refinance is the right choice for you, the process typically involves the following steps:
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Evaluate your current mortgage: This will help determine whether the rate and term can provide significant savings.
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Shop around for lenders: Consider both online and local lenders to find the best option for your needs.
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Apply for a refinance: Once you have chosen a lender, you will need to complete an application and provide documentation such as income verification, credit score, and property information.
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Appraisal and underwriting: The lender will order an appraisal of your home to determine its current value. They will also verify your income and credit history. Based on this information, they will decide whether to approve your application and at what interest rate.
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Closing: If your application is approved, you will need to sign the loan documents and pay any closing costs associated with the refinance. Once the loan is funded, you will begin making payments on the new mortgage.
