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
1%
Cash back allowed: the greater of this share of the loan
Fannie Mae Selling Guide B2-1.3-02 · Oct 8, 2025
97%
Fannie Mae maximum LTV, one-unit primary home (fixed rate)
Fannie Mae Eligibility Matrix · 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 used for anything else turns the deal into a 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. See the rate-and-term refinance guide and the refinance break-even calculator.
Sources
- Fannie Mae Selling Guide B2-1.3-02 — 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 — 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)
Last reviewed Figures are checked against the sources above. Read our editorial policy. This page is general information, not financial advice — see the disclaimer.