What Is a Rate and Term Refinance? How It Works in Canada (FAQ Guide)

FAQs
September 30, 2025 (2 mins read)
what is rate and term refinance

Updated: September 2025

Q: What is a rate and term refinance?

With a rate and term refinance, you replace your current mortgage with a new one that has a lower interest rate or a shorter term; no need to get extra funds. Another name for it is a "no cash-out refinance." It's intended to help you pay off your mortgage more quickly or reduce your monthly payments

Q: What distinguishes a cash-out refinance from a rate and term refinance?

  • Your new mortgage has the same rate and term as your previous one, or less; no extra funding has been issued.
  • You borrow more money than your mortgage balance and get the difference in cash when you cash out.

Q: What is the purpose of a rate and term refinance?

  • To secure a lower interest rate if market rates decline
  • To reduce the term of the mortgage (for instance, from 30 to 25 years).
  • To gradually lower the total amount of interest paid
  • To switch from variable to fixed with lower risk or to obtain better terms

Q: Is it possible for me to refinance in Ontario or Canada with a rate and term?

Yes, a lot of lenders in Canada provide this. You'll need sufficient equity in your house, proof of income, and good credit. Compared to cash-out options, the qualification process is usually simpler because no extra funds are requested.

Q: Are there costs or risks?

 Indeed:

  • Penalties for early repayment if your current mortgage term is broken
  • Costs of legal and appraisal services
  • You will only receive a restructured loan; you won't receive any cash.


People Also Ask

Is a rate and term refinance worth it?

Maybe — it depends on the numbers.

Why it can be worth it:

  • Your monthly interest payment is reduced to a lower rate.
  • A shorter term reduces total interest and allows you to pay off debt sooner.

Why it might not be:

  • Fees associated with refinancing include appraisal, legal, administrative, and potential prepayment penalties.
  • If extending the term is all you do to reduce payments, you can end up paying more interest altogether.

Quick way to check:

  • Add up all your refinance fees.
  • The amount you will save each month is divided by that total.
  • It's probably worth it if the outcome (months) is shorter than the amount of time you intend to spend in the house.

Example: break-even ≈ 16 months, fees = $2,400, monthly savings = $150. It's likely to pay off if you stay for two or more years.

Does a rate and term refinance affect my credit score?

Yes, but only for a brief period of time.

What happens:

  • When you apply, lenders run a hard credit check. That may momentarily lower your score by a few points.
  • Your credit mix and account history may vary when you open a new mortgage, which could somewhat affect your score.
  • Over time, your score will improve if you make the new loan installments on time.

Tips to limit the impact:

  •  Shop for rates within a short period of time. Multiple checks can be counted as one for scoring.
  • Do not open extra financial accounts at the same time.
  • Continue making on-time bill payments to quickly recover from any slight drop. 

Rateswise team can help you understand the best possibilities for you, if you want to see whether a rate and term refinance makes sense for you. To compare the possibilities, use our calculators or get in touch with us.

About the Author

Written by a Rateswise mortgage expert

Instead of only promoting cash-outs, we have assisted Canadian homeowners (particularly in Ontario) in making smart refinance decisions by demonstrating when rate and term make sense.