Rate & Term Refinance
Rate and term refinancing is the most common type of refinance. It allows you to replace your current mortgage with a new loan that has a lower interest rate or a different term length. This option does not involve taking cash out of your home equity.
Benefits
- Lower your monthly mortgage payment
- Reduce the total interest paid over the life of the loan
- Shorten your loan term (example: 30 years to 15 years)
- Switch from an adjustable-rate mortgage to a fixed-rate loan
Considerations
- Closing costs usually apply
- You need sufficient equity in your home
- The interest rate savings must justify the closing costs
Frequently Asked Questions
How much can I save with a rate and term refinance?
Savings depend on how much lower your new rate is compared to your current rate and how long you plan to stay in the home. Even a 0.5%–1% rate reduction can result in significant long-term savings.
Do I need equity to do a rate and term refinance?
Yes. Most lenders require at least some equity in your home, though requirements are generally more flexible than with cash-out refinances.
Cash-Out Refinance
A cash-out refinance allows you to replace your current mortgage with a larger loan and receive the difference in cash. This is a popular option when you want to access your home’s equity for major expenses.
Benefits
- Access home equity as cash for any purpose
- Fund home renovations or improvements
- Consolidate high-interest debt (credit cards, personal loans)
- Potentially secure a lower interest rate than other forms of borrowing
Considerations
- Increases your total mortgage balance
- May result in higher monthly payments
- Requires more equity in your home
Frequently Asked Questions
What can I use cash-out refinance money for?
You can use the funds for almost anything, including home improvements, debt consolidation, education expenses, medical bills, or major purchases.
How much equity do I need for a cash-out refinance?
Most lenders require you to keep at least 20% equity in your home after the refinance, though some may allow less.
VA IRRRL (Streamline Refinance)
The VA Interest Rate Reduction Refinance Loan (IRRRL) is a streamlined refinance available only to veterans who already have an existing VA loan. It’s designed to help you lower your interest rate or switch from an ARM to a fixed-rate loan with minimal paperwork.
Estimate Your VA IRRRL Savings
Frequently Asked Questions
Do I need an appraisal for a VA IRRRL?
In most cases, no appraisal is required. This is one of the biggest advantages of the IRRRL program.
Can I roll closing costs into the loan?
Yes. Most veterans choose to roll closing costs into the new loan so there is little or no money due at closing.