A rate and term refinance is the process of lowering one’s interest rate as well as changing the term of the loan. It is very common to reduce the current rate and set the loan term for 30 years, however some homeowners choose to lower the interest rate and reduce the term of the loan as well. In that case, it is quite common to amortize the new loan over 15 years rather than 30.

A new 15 year monthly payment is often similar to the previous 30 year payment because of the reduction in mortgage note rate and the home will literally be paid off in half of the time.

Another reason why borrowers choose a rate and term refinance is to change the terms of an adjustable rate mortgage (ARM) to a fixed rate loan. During the last decade, a great number of homeowners chose an ARM in order to take advantage of the lower rate as compared to a fixed rate mortgage.

Today many of those loans have past their fixed rate period and are now subject to the current market conditions. Fortunately the current mortgage marketplace is at an historical low and a refinance to a 30 year mortgage will most likely be comparable payment to an existing adjustable rate mortgage.