What is a rate and term only refinance?

A loan option that may lower your monthly payment or let you pay off your home sooner.

If you want to make your mortgage payments more comfortable and your home value is steady or has increased, you may be able to refinance your mortgage with a rate and term refinance loan. A rate and term only refinance can be either:

  • Conventional, which is backed by Fannie Mae or Freddie Mac
  • A government program, like a VA Interest Rate Reduction Refinance Loan (IRRRL) or a Federal Housing Administration (FHA) Streamline Refinance

Benefits of a rate and term refinance

Lower your interest rate.

Refinancing into a lower interest rate could reduce your payment, leaving more money in your monthly budget. And depending on the term of the loan, you could also save on the total amount of interest paid over the life of the loan.

Change the term of your loan.

Depending on the remaining term of your current loan, you could shorten your loan term with the goal of building equity faster or paying off your home more quickly. If you choose to extend your loan term, you may be able to take advantage of a lower monthly payment. U.S. Bank offers a range of loan terms for rate and term only refinancing.

Keep your existing loan balance.

With a rate and term refinance, the principal remaining from your previous mortgage stays the same as long as you pay your closing costs upfront. This is good news for you, because it means you can continue to build the equity in your home. It differs from a cash out refinance in that it doesn’t pull funds from the equity in your home.

Requirements and qualifications

  • Credit score – A score of 740 or above is generally considered very good, but is not required to refinance your home. The minimum credit score needed for some mortgages is typically around 620. Government-backed mortgages like Federal Housing Administration (FHA) loans typically have lower credit requirements than conventional fixed-rate loans and adjustable-rate mortgages (ARMs).

  • Home equity – As a general rule, you should have at least 20% equity in your home before you refinance. If you have less than 20%, you may still be able to refinance, but you may be required to pay private mortgage insurance (PMI). A rate and term refinance could also help you eliminate PMI. If your home value has increased or you have 20% or more equity in your home, this could be an option for you.

  • Closing costs – When you refinance your mortgage, you’ll be required to pay closing costs similar to when you purchased your home. While these expenses can vary, you should expect to pay between 2% and 5% of the loan amount. So, on a $250,000 home purchase, you could pay between $5,000 and $12,500 in closing costs. You may be able to roll these costs into your mortgage, but it will increase the principal you must repay.

Why choose U.S. Bank for your next mortgage?

We can help you choose the option that’s best for you.

If you’re an existing customer with a U.S. Bank first mortgage or U.S. Bank Personal Checking Package, you may be eligible for a customer credit on the closing costs of your next mortgage.1 Take 0.25% of your new first mortgage loan amount and deduct it from the closing costs, up to a maximum of $1,000.2

If your mortgage is with another lender, U.S. Bank offers other refinancing options to lower your interest rate and change the term of your loan.

Ready to get started? Our mortgage loan officers can answer all of your home refinance questions and help you find the mortgage that's right for you.

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  1. Customers may be eligible for this credit with an existing U.S. Bank first mortgage, a U.S. Bank Smartly Checking account or an existing Gold or Platinum Checking Package. A minimum of $25 is required to open a U.S. Bank Smartly Checking account. For a comprehensive list of account pricing, terms and policies see the Consumer Pricing Information disclosure and the Your Deposit Account Agreement. These documents can be obtained by contacting a U.S. Bank branch or calling 800-872-2657.

  2. To calculate the U.S. Bank Customer Credit, take 0.25% of your new first mortgage loan amount and deduct it from the closing costs. For purchase or refinance transactions, the maximum credit is $1,000. Certain mortgages may not be eligible for stated credits. Offer may not be combined with any other mortgage offers and can only be applied once per property within a 12-month period.

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Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rate and program terms are subject to change without notice. Mortgage, home equity and credit products are offered by U.S. Bank National Association. Deposit products are offered by U.S. Bank National Association. Member FDIC.