Mortgage Glossary
Rate-Term Refinance
A refinance that changes rate, term, or both — without returning cash to the borrower beyond closing costs and escrows.
What is a rate-term refinance?
A rate-and-term refinance (often abbreviated “R/T”) is a refinance whose proceeds pay off the existing first mortgage and cover normal closing costs and prepaid escrow items — nothing more. The borrower walks away from the closing table with no meaningful cash in hand. The point of the loan is to change the rate, the loan term, or both.
Rate-term is treated by lenders as a lower-risk transaction than cash-out because the borrower’s equity position in the property is unchanged. The lender is not increasing its exposure — it’s simply replacing one loan with another on similar terms. Pricing is generally tighter (lower rate), LTV caps are often slightly higher, and seasoning requirements (waiting period after purchase) are looser.
Common rate-term use cases include refinancing out of a high-rate purchase loan once rates drop, locking in a fixed rate before an ARM’s fixed period ends, or switching to a shorter amortization to pay the loan off faster.
How rate-term refinance applies at Total Quality Lending
Rate-term refinance is available on every TQL program: DSCR up to 80% LTV at the top tier, Prime Time up to 90% LTV on a primary residence (720+ FICO, ≤$1.5M), Multi-Unit DSCR up to 75% LTV, and Foreign National DSCR up to 70% LTV. When refinancing, TQL loan officers will model both rate-term and cash-out scenarios side-by-side so you can pick the better economic path.
FAQs
What's the difference between rate-term and cash-out?
Rate-term changes only the interest rate, the loan term, or both. The borrower does NOT receive cash beyond minor amounts for closing costs and prepaid escrows (generally capped around 2% of the loan amount or $2,000). Cash-out delivers significant additional funds to the borrower from accumulated equity.
Why would I do a rate-term refinance?
Three main reasons: (1) Interest rates have dropped and you want to lower your monthly payment; (2) You want to shorten or extend the loan term — e.g., refinancing into a 15-year fixed to build equity faster; (3) You're coming out of an ARM's fixed period and want to lock in a 30-year fixed before the rate adjusts.
Is rate-term LTV higher than cash-out LTV?
On most TQL programs, rate-term and cash-out share the same top-tier LTV (80% DSCR, 90% Prime Time on primary residence). However, rate-term tends to have looser sub-criteria (lower reserves required, less seasoning) since the lender's risk is unchanged — you're not extracting equity.
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Talk to a loan officer who can compare rate-term and cash-out scenarios side-by-side.