What is a conventional fixed-rate refinance?
A “fixed-rate” refinance comes with an interest rate that won’t change for the life of your home loan. A “conventional” (conforming) refinance is a loan that conforms to established guidelines for the size of the loan and your financial situation. Conventional refinance loans may feature lower interest rates than jumbo refinance loans, FHA refinance loans or VA refinance loans. Terms of these conventional loans typically range from 10 to 30 years.
Monthly principal and interest payments on a conventional fixed-rate refinance remain the same for the life of the loan making it an attractive option for borrowers who plan to stay in their home for several years. The alternative to the fixed-rate refinance is the adjustable-rate mortgage (ARM) refinance loan, which features lower monthly principal and interest payments during the first few years. While many prefer the security of a fixed-rate loan, an ARM may be a better option—especially if you know you’ll be moving within the next several years.
30-year fixed rate mortgages
The 30-year fixed-rate refinance loan has long been popular due to its fixed interest rate and lower monthly payments. However, since the interest payments are spread out over 30 years, you’ll pay more interest over the life of the loan than you would on a shorter-term mortgage.
15- and 20-year fixed-rate mortgages
With a short loan term and lower interest rate, a 15-year fixed-rate refinance or 20-year fixed-rate refinance can help you pay off your home faster and build equity more quickly, although your monthly payments will be higher than with a 30-year loan.
Conventional loan benefits and considerations
No interest rate surprises
With a fixed-rate mortgage or a conventional loan, the interest rate won’t change for the life of your loan, protecting you from the possibility of rising interest rates.
The lowest fixed rate
Conventional mortgages may offer a lower interest rate and Annual Percentage Rates (APR) than other types of fixed-rate loans.
Fewer hoops to jump through
Conventional mortgages may require less documentation than FHA loans or VA loans, which could speed up the overall processing time.
Cost to refinance
If you’re curious about the costs associated with refinancing, use our mortgage refinance cost calculator to get an estimate of how much it will cost.
Conventional loan requirements and qualifications
- Loan amount - The loan amount for a conforming mortgage is generally limited to $548,250 for a single-family home, though limits may be higher in regions where home prices are higher. Jumbo loans allow you to exceed the conforming loan limit to borrow for a higher-valued home.
- Borrower equity - Most conventional loans will require at least 5 percent (and optimally 20 percent or more) as a down payment. If the borrower equity is less than 20% mortgage insurance may be required, which could increase the monthly payment and the APR. For loans with lower down-payment requirements, explore government-backed mortgages like VA loans and FHA loans or speak to your mortgage loan officer about other options that may be available.
- Credit history - Conventional loans are a good choice for borrowers with very good credit, which generally means a FICO score of 740 or higher. There are also established guidelines for income and other personal financial information.
Conventional fixed-rate mortgages are a popular option, but they’re not the only one. Compare mortgage options to learn more on your own, or contact a mortgage loan officer to find out which mortgage option may be the best fit for you.