Refinance guide
Rate-and-term refinance: how it works and when it pays off
Written by Abdel Khawatmi, licensed mortgage loan originator ·
A rate-and-term refinance replaces your existing mortgage with a new one at a lower interest rate, a different term, or both. It does not increase the loan balance beyond closing costs. On a $400,000 loan, cutting the rate by 1.5 points saves roughly $400 a month, and the deal makes sense once you expect to stay in the home past the break-even month shown on your quote.
- Typical monthly savings, $400k loan, 1.5-point cut
- ~$400
- Minimum equity for most programs
- 10%
- Median time to close
- under 14 days
What a rate-and-term refinance actually changes
Two levers move: the interest rate and the number of years left on the loan. Pull the rate lever and the monthly payment drops while the payoff date stays roughly the same. Pull the term lever — 30 years down to 20 or 15 — and the payment may hold steady or rise slightly while tens of thousands of dollars of interest disappear from the life of the loan.
Nothing else about the debt changes. You are not pulling equity out, and the new balance is your current payoff plus any closing costs you choose to roll in.
Who this is for right now
Homeowners whose current rate starts with a 6 or a 7 are the clearest candidates. So are owners who took a short-term or adjustable product and want the certainty of a fixed payment before the adjustment date arrives.
If your rate already starts with a 3 or a 4, a rate-and-term refinance usually is not the move. Keeping that first mortgage and drawing on equity through a HELOC is normally the better math.
The break-even month, in plain numbers
Divide the total closing costs by the monthly savings. Costs of $5,400 against savings of $400 a month means you break even in month 14 and everything after that is profit. Every Got Refis quote shows that number in writing before you commit to anything.
Rolling closing costs into the balance does not make them free — it moves them into the loan, where they accrue interest. Your advisor will show both versions side by side.
What the process looks like
Share your balance, current rate and goal — about two minutes, no documents. The rate check is a soft credit pull with no score impact. Because Got Refis funds and services loans in-house through PRMG rather than brokering them out, pricing comes back the same day and the median file funds in under 14 days.