Rate and term refinance is when you refinance simply to change the interest rate and the term of your mortgage. You aren't pulling out any cash or equity. You are negotiating a better deal for yourself. Your new interest rate will be determined by how much money you are borrowing and for what length of time. Mortgage companies use a formula called a 'loan to value' ratio to calculate this. As an example, if you had an $80,000 home and an existing mortgage of $40,000, you would have a loan to value ratio of 50%. The higher your loan to value (LTV) ratio, the higher the interest rate.