Rate and term no cashout refinance
The rate and term refinance, or "no cash-out" mortgage, deals with a straightforward refinance of an existing loan. The loan-to-value (LTV) ratios for non-cash-out refinances are higher than for cash-out, because cash-outs increase the lender's risk exposure.
Strictly speaking, conforming rate and term (non-cash-out) refinances—and their higher loan-to-value (LTV) ratios—are applied to the following situations:
- Refinance of a first mortgage that is at least one year old. Rate and term (non-cash-out) refinance may cover any loan that is paying off any first mortgage loan that is at least one year old. If the existing loan is less than one year old, many lenders consider this refinances a cash-out and apply a lower LTV ratio. [However, there are exceptions allowed.]
- Consolidation of multiple mortgages. Rate and term refinance may cover a consolidation of mortgage loans. However, the junior liens must be at least one year old.
- Refinance that also pays closing costs and prepaid expenses. The loan amount of a rate and term (non-cash-out) refinance mortgages may be increased to cover the closing costs, discount points and pre-paid expenses of the refinance transaction.
- Limited cash back. The borrower may receive a cash surplus with the rate-and-term refinance, but the cash-out may not exceed 1% of the mortgage amount. Because it is considered a rate & term refinance, the borrower can actually qualify for a higher loan amount.
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