Definition
Rate-and-term refinancing replaces your mortgage with a new loan at a different rate and/or term without extracting cash. It's the most common refinance type, triggered when rates drop or you want to shorten your loan term.
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Rate-and-term refinances are the most common refinance type. Borrowers pursue them when interest rates drop (to lower payments) or to shorten the loan term (to pay off faster). Since no cash is extracted, the new loan amount equals the outstanding balance on the current mortgage. These refinances typically have lower fees and close more quickly than cash-out refinances because there's less risk to lenders.
Pro Tip
Calculate your break-even point before refinancing; it should take no more than 3-5 years to recover closing costs through monthly savings.
Example
You have a 30-year mortgage at 5.5% with $250,000 remaining. Rates drop to 4.2%, so you refinance into a new 30-year loan at 4.2%, reducing your monthly payment by $250.