Every refinance requires the lender to demonstrate how the new loan will financially benefit the borrower.
Every refinance requires the mortgage lender to demonstrate how the new loan will financially benefit the borrower, and each loan type has a specific guideline to define what qualifies as a “benefit.”
In most cases, the benefit of a rate/term refinance is lowering the interest rate or monthly payment by a minimum threshold (depending on loan type). There are other reasons, such as reducing the loan’s term (e.g., from a 30-year fixed-rate mortgage to a 15-year), refinancing from an adjustable-rate loan to a fixed-rate loan (considered less risky), removing private mortgage insurance, combining a 1st/2nd combo into one new loan, or adding/removing a borrower from the loan. In the case of a cash-out refinance, the benefit is receiving cash from the equity in the property for debt consolidation or home repairs.