A rate and term refinance replaces an existing mortgage with a new one at a better rate, shorter term, or to eliminate FHA mortgage insurance. No cash is extracted beyond closing costs rolled into the loan. The pricing is better than cash-out refinance across the board because lender risk is lower.
Seasoning Requirements in 2026
Fannie Mae and Freddie Mac require the existing loan to have been in place for at least six months before a rate and term refinance. The six-month clock starts at the note date, not the closing date. FHA requires at least 210 days from the first payment date and six payments made before an FHA-to-FHA rate and term.
- ✦Conventional: 6-month seasoning from original note date
- ✦FHA to FHA: 210 days from first payment plus 6 payments made
- ✦VA to VA IRRRL: 210 days and 6 payments made
- ✦Jumbo: lender-specific, typically 12 months
LTV Limits for Rate and Term
Rate and term refinance LTV limits are generally more generous than cash-out. Conventional allows up to 97% LTV for primary residence on Fannie HomeOne and HomeReady with income limits. Standard conventional rate and term goes to 95% LTV for primary. Investment property rate and term: 75% LTV. Jumbo: lender-specific, typically 80% to 90%.
When to Pull the Trigger
The traditional 1% rate drop rule is outdated. Run the actual recoupment calculation. Divide closing costs by the monthly savings to get the break-even in months. If the borrower plans to stay past that date, the refinance pencils out. FHA-to-conventional refinances can eliminate MIP even if the rate barely moves, which often generates significant savings.
Aria can calculate the break-even for any rate and term refinance scenario and identify whether FHA-to-conventional MIP elimination changes the math. Ask at vicariointel.com.
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