How does rate/term differ from cash-out?

Rate/term replaces your loan at better terms with no additional proceeds. Cash-out adds to the balance and disburses equity. Rate/term carries lower rates and higher LTV.

Can I switch from Non-QM to conventional through a rate/term refi?

Yes — if documentation has changed, a conventional refi may be available at a better rate.

How much does a rate/term refi cost?

Typically 1.5-3% of the loan amount. No-closing-cost options roll costs into the rate.

Is there a minimum rate improvement required?

No — only the break-even matters. Closing costs ÷ monthly savings = months to recoup.

Can I refi my bank statement loan rate/term?

Yes — same deposit documentation applies. Lower rate without cash-out component.

← Refinance

Rate and term refinance — lower your rate without cashing out

A rate-and-term refinance changes your interest rate, loan term, or both without extracting cash. It's the cleanest refi: lower closing costs than a cash-out, no equity requirement beyond standard LTV, and available via bank statement or 1099 programs for self-employed borrowers.

By Sunrise Lending

Rate/term vs. cash-out

A rate-and-term refi replaces your existing loan with a new one at better terms. No cash above closing costs comes to you. A cash-out refi does the same but also disburses additional proceeds from your equity. Rate/term refis typically carry lower rates and easier LTV requirements than cash-out.

What you need to know

Lower rate or shorter term — or both — without taking cash out
Lower closing costs and slightly better rates than cash-out refi
LTV limit: typically up to 95% for rate/term vs. 80% for cash-out on most programs
No minimum equity requirement beyond meeting LTV
Bank statement or 1099 income: same documentation as the original Non-QM loan
Break-even analysis: closing costs ÷ monthly savings = months to recoup

When a rate-and-term refi makes sense

A rate-and-term refi is the right move when rates have fallen enough from your origination rate that the monthly savings pay back the closing costs in a reasonable timeframe — typically under 30 months. The monthly savings are the permanent benefit; the closing costs are the one-time cost. Divide closing costs by monthly savings to get break-even months.

For Non-QM borrowers, a rate-and-term refi also provides an opportunity to move from one program to another — for example, from a P&L loan to a bank statement loan if the borrower now has 24 months of strong deposits and the bank statement qualifying income is higher. Or from a Non-QM product to a conventional product if income documentation has changed.

No appraisal programs

Some refinance programs offer streamlined, no-appraisal refis for rate-and-term transactions. These are more common on conventional conforming loans (Fannie/Freddie flex refis) than on Non-QM, but the option is worth checking — eliminating the appraisal saves $500–$900 and several weeks.

Documentation for a Non-QM rate-and-term refi

The same documentation as the original loan applies: 12–24 months of bank statements, CPA letter if applicable, credit pull, and title work. Rate-and-term refis do not typically require updated appraisals (depending on LTV) and have slightly simpler underwriting than new purchase loans.

Rate lock strategy

Rates change daily. A rate-and-term refi doesn't have a purchase contract deadline, so there's no externally imposed urgency. Lock when the savings pencil clearly — when the break-even is under 24 months and you have reasonable confidence you'll stay in the home that long.

Common questions

How does a rate/term refi differ from a cash-out refi?: A rate/term refi replaces your loan at better terms without taking additional proceeds. A cash-out refi adds to the loan balance and disburses cash from equity. Rate/term carries lower rates and typically allows higher LTV than cash-out.
Can I change from a Non-QM loan to a conventional loan through a rate/term refi?: Yes — if your income documentation has changed (for example, you now have 2 years of W-2 income in addition to your business), a conventional refi may be available at a better rate. The loan officer evaluates both conventional and Non-QM options.
How much does a rate/term refi cost?: Typically 1.5%–3% of the loan amount in total closing costs (origination, title, appraisal, escrow). On a $500,000 loan, roughly $7,500–$15,000. Some lenders offer no-closing-cost refis that roll costs into the rate.
Is there a minimum rate improvement that makes a refi worthwhile?: The only threshold that matters is the break-even: closing costs ÷ monthly savings. If the math produces a break-even under 24 months and you plan to stay, the refi works regardless of how small the rate improvement is.
Can I do a rate/term refi if I bought with a bank statement loan?: Yes — a bank statement rate/term refi uses the same deposit documentation. If rates have improved since origination, the refi can lower your payment without a cash-out component.

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Related resources

Sources

1.Consumer Financial Protection Bureau (CFPB). Mortgage refinancing: what you need to know — Accessed June 2026
2.Federal Reserve Bank of St. Louis (FRED). 30-Year Fixed Rate Mortgage Average — Accessed June 2026
3.Consumer Financial Protection Bureau (CFPB). Know Before You Owe — closing disclosures — Accessed June 2026

Rate/term refinance availability, LTV limits, and closing costs vary by program and lender. Not a commitment to lend.

Sunrise Lending · Equal Housing Opportunity. Matching rules are written and reviewed by licensed mortgage professionals. All loan decisions are made by licensed mortgage professionals. Not a commitment to lend. Loan approval subject to underwriting guidelines. This is not financial advice.