# Rate-and-term refinance

> A rate-and-term refinance changes your mortgage rate or term without taking equity out. What the new loan may pay off and how much cash back is allowed.

URL: https://mail.mortgage-math-us.com/glossary/rate-and-term-refinance/  
Last reviewed: 2026-10-29 · By the MortgageMath US Editorial team

## Quick answer

**A rate-and-term refinance** replaces your mortgage with a new one that changes the interest rate, the loan term or both, without borrowing against extra equity. The new loan pays off the old balance and can include closing costs; Fannie Mae calls this a limited cash-out refinance.

## Key facts

| Fact | Value | Source | As of |
|---|---|---|---|
| Cash back allowed: the greater of this share of the loan | 1% | [Fannie Mae Selling Guide B2-1.3-02](https://selling-guide.fanniemae.com/sel/b2-1.3-02/limited-cash-out-refinance-transactions) | Oct 8, 2025 |
| …or this amount | $2,000 | [Fannie Mae Selling Guide B2-1.3-02](https://selling-guide.fanniemae.com/sel/b2-1.3-02/limited-cash-out-refinance-transactions) | Oct 8, 2025 |
| Fannie Mae maximum LTV, one-unit primary home (fixed rate) | 97% | [Fannie Mae Eligibility Matrix](https://singlefamily.fanniemae.com/media/20786/display) | Apr 1, 2026 |

## What the new loan can pay off

Under Fannie Mae’s rules, the new loan can cover the existing first mortgage, closing costs, points and prepaid items. A second mortgage can be rolled in only if it was used to buy the home; paying off a [HELOC](https://mail.mortgage-math-us.com/glossary/heloc/) used for anything else turns the deal into a [cash-out refinance](https://mail.mortgage-math-us.com/glossary/cash-out-refinance/), so you would pay it off separately or ask the HELOC lender to subordinate — stay in second place behind the new loan. Loan-to-value can go as high as 97%, against 80% on a cash-out refinance.

## Example: the cash-back limit

Cash back is limited to the greater of 1% of the new loan or $2,000. On a $300,000 refinance that’s $3,000; on $150,000 it’s $2,000. Anything more makes it a cash-out loan, with a lower LTV limit and usually higher pricing.

Whether a lower rate or shorter term pays depends on the [break-even point](https://mail.mortgage-math-us.com/glossary/break-even-point/). See the [rate-and-term refinance guide](https://mail.mortgage-math-us.com/refinancing/rate-and-term/) and the [refinance break-even calculator](https://mail.mortgage-math-us.com/tools/refinance-break-even-calculator/).

## Sources

- [Fannie Mae Selling Guide B2-1.3-02](https://selling-guide.fanniemae.com/sel/b2-1.3-02/limited-cash-out-refinance-transactions) — Fannie Mae limited cash-out refinance: cash back up to the greater of this share of the loan; Fannie Mae limited cash-out refinance: cash back up to the greater of 1% or (Oct 8, 2025)
- [Fannie Mae Eligibility Matrix](https://singlefamily.fanniemae.com/media/20786/display) — Fannie Mae limited cash-out refinance maximum LTV, one-unit principal residence (fixed rate); Fannie Mae cash-out refinance maximum LTV, one-unit principal residence (Apr 1, 2026)
- [Fannie Mae Selling Guide B2-1.3-02: Limited cash-out refinance transactions](https://selling-guide.fanniemae.com/sel/b2-1.3-02/limited-cash-out-refinance-transactions)

_General information, not financial advice._