what is a rate and term refinance 
a rate and term refinance is a type of mortgage loan refinancing that results in a lower interest rate or loan term or a combination of both a rate and term refinance does not provide any upfront money to the borrower which is why it s also known as a no cash out refinance conversely with a cash out refinance the home s equity is exchanged for cash adding the cashed out money to the mortgage loan balance the borrower receives cash at the closing in addition to their new loan rate and term refinances often carry lower interest rates than cash out refinances understanding rate and term refinancerate and term refinancing activity is driven primarily by a drop in market interest rates in order to lower monthly mortgage payments in contrast cash out refinance activity is usually driven by increasing home values and by homeowners seeking to tap into their home s equity the potential benefits of rate and term refinancing include securing a lower interest rate and a more favorable term on the mortgage while the principal balance remains the same as a result you could lower your monthly payments you could also choose to establish a new payment schedule to pay off the mortgage more quickly for example if you originally had a 30 year fixed rate mortgage and had been paying it down for 10 years you could refinance the loan at a lower rate but choose a 15 year term you wouldn t benefit from a much lower payment due to the lower rate but you d pay the loan off faster because there are advantages and disadvantages associated with both rate and term and cash out refinancing be sure to compare the rate and term offers from various mortgage lenders from there you can weigh the pros and cons of each before making a final decision requirements for rate and term refinancingfor rate and term refinancing to work lower interest rates must be available to the borrower there are two main reasons why this might not be the case the first is that interest rates in the overall economy can go up during the application process making them no longer available this is one of the many factors influencing interest rates over which borrowers have no control however you do have some control over your consumer debt or credit mortgage lenders will review your credit history and credit score to determine your creditworthiness if your credit has worsened since booking the original mortgage such as if you defaulted on a credit card or paid your mortgage payments late you will probably face a higher interest rate your credit score and history can be more important than mortgage interest rates on the other hand if your credit has improved substantially you might be able to refinance at a lower interest rate cash out refinancing increases the loan amount owed on your mortgage due to the additional credit risk lenders typically charge higher rates for cash out refinances meaning you have a higher monthly payment versus other types of refinances as a result cash out refinancing can increase the risk of foreclosure 1rate and term refinancing vs other optionscash out refinancing takes equity from your home for you to use it works best when the overall value of the property has increased because of rising real estate values however cash out refinancing can also be done if you are well along in the mortgage and have paid in a significant part of its equity a cash out refinancing increases the principal owed on your mortgage this form of refinancing might call for a re appraisal of the home to gauge its new value you might seek such refinancing to gain access to capital from the value of the house money you otherwise might not see until the home was sold a converse option called cash in refinancing involves putting more money toward the settlement of the mortgage to reduce any remaining principal 