FHA Rate and Term Refinance — Lower Your Rate Without Taking Cash Out
If you want to reduce your interest rate, shorten your loan term, or change from an adjustable to a fixed rate — without pulling equity out — the FHA Rate and Term Refinance is designed exactly for that purpose.
What It Is
A Rate and Term Refinance replaces your existing mortgage with a new FHA loan at different terms. You’re not taking cash out — you’re improving the rate, the term, or both. Any cash back is limited to a maximum of $500.
Maximum LTV: 97.75%
The FHA Rate and Term Refinance allows a maximum LTV of 97.75% — significantly higher than the 80% allowed for cash-out. Even if you only put 3.5% down when you bought, you may qualify relatively quickly. The maximum CLTV is also 97.75%.
Eligibility Requirements
- Occupancy: Must be your primary residence (standard)
- Payment history: No 30-day late payments in the 6 months prior to case number assignment; no more than one 30-day late in the 7–12 months prior
- Minimum loan amount: $75,000
- Owned less than 12 months: If you’ve owned the property less than 12 months at time of case number assignment, the appraised value for LTV purposes is the lesser of the current appraised value or the original purchase price plus documented improvements
When Rate/Term Makes Sense
- Interest rates have dropped since you bought
- You’re in an adjustable-rate FHA mortgage and want to lock into a fixed rate
- You want to shorten your loan term and pay less interest over the life of the loan
- You want to roll in an existing subordinate lien
Rate/Term vs. FHA Streamline
| Feature | Rate/Term Refinance | FHA Streamline |
|---|---|---|
| Appraisal required | Yes | No (in most cases) |
| Income documentation | Yes | Not always |
| Existing loan type | Any mortgage | Must be FHA |
| Max LTV | 97.75% | Based on existing balance |
| Cash back | $500 max | $500 max |
Run a break-even test first
A lower rate only helps if you keep the loan long enough to recover the cost. Illustrative example, not a quote: if closing costs are $7,500 and the new payment is $125 a month lower, the break-even point is $7,500 divided by $125, or 60 months. Sell or refinance again before month 60 and you lose money on the deal. The new FHA loan also carries an upfront mortgage insurance premium of 1.75%, so include it in your comparison along with any partial refund of the old premium.
Watch the term when you lower the payment
Restarting a 30-year term after several years of payments can drop your payment while increasing total interest. If lowering the payment is your goal, ask to see the total interest on the new loan next to what you would still owe on the old one. If saving interest is the goal, a shorter term may be a better fit, even with a higher payment.
Documents to gather
- Your latest mortgage statement and the payment history for the past 12 months
- Pay stubs and W-2s, or tax returns if self-employed
- Homeowner’s insurance declarations page
- Names of any second liens you want to include
- Purchase documents if you bought within the last 12 months
Frequently asked questions
Can I refinance from a conventional loan into FHA?
Yes, because the existing loan can be any mortgage. It can make sense when credit has changed or a conventional loan has become hard to keep, but compare the mortgage insurance carefully against what you pay now.
What if my home has lost value?
A rate and term refinance relies on an appraisal, so a lower value can limit the loan amount. If your current loan is already FHA, a streamline does not need an appraisal and may be the better choice.
How do I compare quotes from different lenders?
Use the Loan Estimate, a standardized form, and compare the rate, APR and cash to close line by line. Our TRID guide shows how.
Related guides
- FHA streamline refinance
- FHA cash-out refinance
- Reading a Loan Estimate
- Refinance calculator
- How much a refinance can save
Practical Takeaways
- Maximum LTV is 97.75% — one of the highest refinance LTVs available
- Up to $500 cash back permitted at closing
- Payment history must be clean for the 12 months prior
- Does not require 20% equity — works even at high LTV
- A net tangible benefit to the borrower is required
- Divide closing costs by monthly savings to find your break-even month.
- Restarting a 30-year term can lower the payment while raising total interest.