Conventional rate & term refinance
The workhorse refinance: replace your current conventional loan with a new rate, a new term, or both. Here's what it takes to qualify and how to know whether it's worth doing.
Four reasons homeowners do it
- Lower the rate. The classic reason. Whether it's worth it depends entirely on break-even math, not on any fixed rule about how big the drop must be.
- Change the term. Moving from 30 years to 20 or 15 raises the payment but can cut total interest dramatically. Moving the other way lowers the payment at the cost of more interest over time.
- Remove PMI. If you're paying private mortgage insurance and your equity has grown to about 20%, a refinance is one way to drop it. (Sometimes a simple PMI removal request works without refinancing; our payment reduction guide covers when.)
- Restructure. Consolidate a first and second mortgage, remove a co-borrower, or move from an adjustable rate to a fixed rate.
What lenders generally look for
Equity
Rate and term refinances are available at high loan-to-value ratios, but pricing improves as your equity grows. Around 20% equity also eliminates PMI on the new loan.
Credit
Conventional pricing is tiered by credit score. If your score has improved meaningfully since you bought, your rate options likely improved with it.
Income and debts
Expect to document income and assets, with your total monthly debts measured against income (your DTI ratio).
Appraisal
Many conventional refinances require an appraisal, but automated appraisal waivers are common when data supports your home's value.
The road less traveled: conventional to FHA
Almost every mortgage site describes moving FHA to conventional. The reverse move exists too, and occasionally it wins: FHA pricing can be more forgiving of lower credit scores, so a borrower whose score has dropped may find the total monthly cost lower on an FHA refinance even with its mortgage insurance. It's rare, it's situational, and most of the time conventional still wins, but an honest options review checks both.
"No closing cost" refinances, honestly
No-closing-cost usually means the costs are paid through a higher interest rate or added to your balance, not that they vanish. That structure genuinely helps if you may sell or refinance again within a few years, because you avoid sinking cash into costs you won't recoup. If you plan to keep the loan a long time, paying costs upfront usually wins. The break-even calculator settles it either way.
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