A conventional fixed-rate refinance has an interest rate that won’t change for the life of your home loan, making your monthly principal and interest payment predictable and consistent. Conventional refinance loans like this may also feature lower interest rates than jumbo refinance loans, FHA refinance loans or VA refinance loans. The length of the loan typically ranges from 10 to 30 years.
With a conventional fixed-rate refinance, you may be able to avoid private mortgage insurance (PMI) if you have 20% or more equity in your home or a down payment of 20% or more. PMI protects the lender against any loss if you fail to pay your mortgage. At least 5% equity (or down payment) is required for most conventional refinance loans, but less equity means you may be required to pay PMI.
You may qualify for a conventional fixed-rate refinance loan if you have good credit and a low debt-to-income ratio (the amount of recurring loan and credit card debt you have relative to your monthly income). You’ll also need to meet the established guidelines for income and other personal information.
One alternative to the fixed-rate refinance is the adjustable-rate mortgage (ARM) refinance loan, that features lower monthly principal and interest payments during the introductory fixed-rate period. If you plan on moving after a few years, an ARM may be a better option to take advantage of those lower monthly payments.