Types of mortgage refinance: Which option is right for you?

This article is for informational purposes only and is not intended to provide, and should not be relied on for, medical, legal, financial, or tax advice. You should consult with a qualified professional for advice specific to your situation. Consumers should independently verify that any services, products, or programs referenced meet their needs and comply with applicable requirements.

Refinancing your home is a major financial milestone, much like buying it was. It’s an opportunity to reset your financial picture, whether that means reducing your monthly payment, paying off your loan sooner, or tapping into your home’s equity to fund a renovation or pay off high-interest debts.¹

Navigating the refinancing landscape can feel overwhelming at first. Understanding the nuances of each loan type – from standard rate-and-term changes to government-backed streamline programs – is the first step toward securing the best loan for your specific needs. We’ll break down how refinancing works and your home refinance options, and help you identify the right strategy for your financial future.

9 types of refinances

There isn't a one-size-fits-all solution for homeowners looking for the best home refinance mortgage. Lenders offer various refinance options to cater to different financial profiles, from those with perfect credit and significant equity to those recovering from financial hiccups.

Here are 9 common home loans to consider when refinancing.

1. Rate-and-term refinance

A rate-and-term refinance adjusts the interest rate, allows for a mortgage term change, or both, without changing the loan balance.

How it works

You take out a new mortgage to pay off your existing one. The goal is usually to secure a lower interest rate for a monthly payment reduction or to shorten the term (for example, from 30 years to 15 years) to save on total interest paid over the life of the loan.

Common qualifications

• There’s no minimum credit score for conventional or VA loans, although lenders may set their own standards.² They look at several credit factors. FHA requires a credit score of 500 if you have 10% equity.³ Rocket Mortgage requires a score of 580, but you need only 3.5% equity.⁴ This minimum credit score also applies to our VA loans.                
• Your DTI should typically be below 45%.
• At least 3% – 5% equity in the home is usually required.

Who it's best for

This option is ideal for homeowners who want to reduce their monthly housing costs or build equity faster by taking a shorter-term loan. It’s a popular choice when interest rates have dropped since you purchased your home.

2. Cash-out refinance

A cash-out refinance allows you to borrow your home equity by taking on a larger balance than your existing mortgage.

How it works

You refinance your mortgage for more than you currently owe using your home's current fair market value. The new loan pays off your existing mortgage, and the difference is paid to you in cash at closing. You can use this money for virtually any purpose, such as debt consolidation, home improvements, or investment.

Because your loan balance increases, your monthly payment may increase unless you secure a significantly lower interest rate.

Common qualifications

• Lenders will typically require higher credit qualifications to take cash out. Rocket Mortgage will allow you to do an FHA loan for the purpose of debt consolidation when your credit score is 580 or higher. The same credit score is required to take cash out with a conforming conventional loan at Rocket Mortgage.
• You typically need significant equity and must usually retain at least 20% equity in the home after the refinance. VA loans allow you to convert all your existing equity into cash. Rocket Mortgage allows you to use it all for debt consolidation at a 580 credit score. Meanwhile, there are no restrictions if your score is 620 or higher

Who it's best for

This works best for homeowners with significant equity. You might use it to fund a home improvement project or consolidate debt at an interest rate lower than those offered by Home Equity Loans or personal loans.⁵

3. Cash-in refinance

A cash-in refinance is the opposite of a cash-out. Instead of taking money out, you bring funds to the closing table to pay down your principal balance.

How it works

By paying down a portion of the mortgage balance up front, you reduce your loan-to-value ratio (LTV). This can help you qualify for a lower interest rate, eliminate private mortgage insurance (PMI), or get your mortgage ‘above water’ if you owe more than the home is worth.”

Common qualifications

• While there’s no specific amount of cash you have to bring to the table, one of the most common reasons to do this would be to drop PMI. To do that, you need to bring enough cash to have 20% equity following the transaction.
• You have to be able to show enough income that’s consistent to make the loan payments.

Who it's best for

Homeowners who want to secure a lower interest rate but have a high LTV, or those looking to eliminate mortgage insurance costs by raising their equity to 20%, may view this as ideal.

4. FHA Streamline refinance

The FHA Streamline refinance is an exclusive benefit for homeowners who already have a mortgage insured by the Federal Housing Administration (FHA).⁶

How it works

This program is designed to reduce the refinance time frame for paperwork and processing. It typically requires less documentation than a standard refinance. In many cases, no new appraisal is required, and income verification may be waived. It’s strictly for reducing your rate, changing your term, or loan type. No cash-out is allowed.

Common qualifications

• You must currently have an FHA loan.
• The mortgage must be current with no late payments in the last 6 months and only one in the last year.
• There must be a net tangible benefit, meaning the refinance will save you money.

Who it's best for

Current FHA borrowers who want to lower their rates quickly and easily, with minimal underwriting hurdles, could benefit from this.

5. VA Streamline refinance

Also known as an Interest Rate Reduction Refinance Loan (IRRRL), the VA Streamline refinance is for homeowners with a VA loan.⁷

How it works

Like the FHA Streamline, this program simplifies refinancing an existing VA loan into a new VA loan. It usually requires no appraisal and less documentation regarding income or credit.

Common qualifications

• You must have an existing VA loan.
• You need to certify that you currently or previously occupied the home.
• You must qualify for a lower interest rate unless you're moving from an ARM to a fixed-rate loan.

Who it's best for

Eligible VA loan clients who want to reduce their monthly payments or stabilize their rate without a lengthy underwriting process should consider this option.

6. USDA Streamlined refinance

The USDA Streamlined refinance helps borrowers with loans backed by the U.S. Department of Agriculture (USDA) reduce their interest rates. Rocket Mortgage currently does not offer USDA loans.

How it works

These loans are aimed at those in rural areas with a current USDA loan. The biggest difference between a USDA Streamlined refinance and a USDA Streamlined Assist is that the latter is more forgiving in terms of payment history. But to qualify, you need a reduction in your current monthly payment of $50.

Beyond that, many of the benefits are the same. There’s often no need to check DTI and no appraisal requirement unless there was a subsidy with your previous loan.

To apply, you’ll work with a USDA-approved lender, or if your original loan was with the USDA, the department itself.

Common qualifications

• You must have an existing USDA Guaranteed Housing Loan.
• The home must still meet USDA eligibility.
• You must meet a tangible benefit requirement ($50 net reduction in monthly payment for Streamlined Assist).

Who it's best for

Rural homeowners with USDA loans looking to reduce their monthly housing expenses with minimal friction should check this out.

7. Reverse mortgage

A reverse mortgage, typically a home equity conversion mortgage (HECM), allows older homeowners to convert equity into cash without monthly mortgage payments. There are also proprietary and single-purpose reverse mortgages. Rocket Mortgage doesn’t offer reverse mortgages at this time.

How it works

Unlike a traditional mortgage, where you pay the lender, a reverse mortgage has the lender pay you – either in a lump sum, a series of monthly payments, a line of credit, or some combination of these. You make no monthly principal and interest payments.

The loan is repaid when you move out, sell the home, or die. However, you’re still responsible for paying property taxes, homeowners insurance premiums, and home maintenance costs.

It’s important to note that a reverse mortgage is a nonrecourse loan. You and your heirs can’t be held responsible for not paying it back. In exchange for this, one option is for the lender to take the home. Your heirs can also sell the home to pay off the loan and keep the difference. They can also potentially refinance or otherwise repay the lesser of the full loan balance or 95% of the home’s appraised value.

Common qualifications

• Must be 62 or older
• Must own the home outright or have a low mortgage balance
• Must live in the home as a primary residence

Who it's best for

Retirees with significant home equity who need to supplement their retirement income or cover healthcare costs and want to age in place may find this is a good option.

8. No-closing-cost refinance

A no-closing-cost refinance sounds like a freebie, but it’s actually a restructuring of the fees.

How it works

Instead of paying closing costs upfront in cash, the lender covers these costs in exchange for charging you a slightly higher interest rate. Alternatively, closing costs may be rolled into the loan principal.

Common qualifications

• Sufficient equity to roll costs into the loan
• Being able to handle the payment for the slightly higher interest rate associated with lender credits

Who it's best for

Homeowners who plan to move within a few years (before the higher interest rate negates the upfront savings) or who are illiquid but want to refinance for immediate payment relief could benefit from this.

9. Mortgage recasting

Mortgage recasting isn’t a new loan, but it achieves a similar goal to refinancing. Recasting your mortgage is an option that allows you to avoid paying closing costs.

How it works

You make a large lump-sum payment toward your principal balance. The lender then re-amortizes the balance over the remaining term of the loan. This reduces your monthly payment, but your interest rate and loan term stay the same. Because you aren’t getting a new loan, you avoid traditional closing costs.

Common qualifications

• A large lump sum of cash (Rocket Mortgage requires $10,000 minimum)
• Loan must be current.
• Loan type must be eligible (FHA and VA loans don’t allow recasting).

Who it's best for

Homeowners who have come into a large sum of money (inheritance, bonus) and want lower monthly payments could do so without the hassle or cost of a full refinance.

How much does it cost to refinance?

While refinancing can save you money in the long run, it isn’t free. Just like when you bought your home, there are costs involved in originating a new loan. Generally, you can expect closing costs to run between 3% – 6% of the loan amount. Here are a few refinance fees you should prepare for:

• Closing costs: This is the umbrella term for various settlement costs we’ll discuss in the remainder of this list.
• Title insurance: You’ll be required to get a new lender’s title insurance policy to protect the lender’s interest in case something is missed in the title search. If you have an existing owner’s title insurance policy, it remains effective as long as you own the home.
• Recording fees: When you get a new mortgage, the lien is recorded with the county. This just means updating the property records.
• Appraisal fees: Lenders typically require a new appraisal to verify the home's current market value.
• Inspection fees: Depending on the loan type and property condition, inspections (like pest or structural) may be required. For example, if an appraiser has concerns, they may order an inspection for termites or to check on the condition of your roof.
• FHA mortgage insurance premium (MIP): An FHA loan requires you to pay an upfront MIP equal to 1.75% of your loan amount. This insurance helps cover the lender if you default.
• VA funding fees: If you’re getting a VA loan, a VA funding fee is usually required, though the amount varies based on whether it’s your first use of the benefit. It serves a similar purpose to MIP.
• USDA guarantee fees: USDA loans carry an upfront guarantee fee and an annual fee instead of mortgage insurance.

You may want to get Loan Estimates from different lenders to compare terms. Even a small difference in fees or interest rates can change your break-even point – the time it takes for your monthly savings to outweigh the upfront cost of the refinance.

It's also a good idea to check your credit report a few months before you plan to apply to make sure you meet refinance eligibility requirements. This gives you time to correct potential mistakes, ensure on-time payments, and reduce your credit utilization to raise your score and qualify for better rates and terms.

What to consider before refinancing your mortgage

When deciding among the different types of refinancing options, there are several factors you should consider, including:

• The type of mortgage loan you currently have can affect your options because certain loan types will have streamlined requirements if you go into the same type of loan.
• The type of borrower you are (for example, a veteran with a VA loan) impacts the loan options you might have. Another example would be options aimed at low- and middle-income borrowers.
• The financial goals you hope to achieve by refinancing matter because certain loan types don’t allow for taking cash out.
• The amount of equity you have in your home can affect whether you qualify, particularly if you’re looking to take cash out. It also impacts your rate.
• Your credit score is one of the other big determinants of whether you qualify and the type of interest rate you can expect. The higher it is, the better.
• Your DTI is an important factor because the lender wants to make sure you can afford the monthly payment without stretching your budget.
• Your LTV is a term lenders use so that they don’t have to refer to both down payment and equity. LTV is the inverse of your down payment or equity. So you get to it by subtracting your equity from 100. Both in terms of your chances to qualify and the interest rate, the lower your LTV is, the better. If you’re looking to take cash out, one thing to always keep in mind is that the upper end for LTV is usually 80%, meaning you have to leave 20% equity in the home. The premium is on making sure you have enough equity to accomplish your goals.
• Your overall financial standing (for example, your ability to afford closing costs or pay off additional debt) is another consideration. Lenders also look at reserves, which is the number of times you could make your mortgage if you lost your income.

If you’re still not sure which type of refinance would best fit your needs, talk to a Home Loan Expert about what potential terms for different refinance options would look like, and ask for other mortgage refinance tips.

FAQ

Refinancing can be complex. Here are answers to some of the most common questions homeowners have when exploring how and when to refinance.

How often can I refinance my home?

Legally, there is no limit to how often you can refinance your home loan. However, lenders and mortgage investors may have “seasoning” requirements, meaning you must wait a certain period (often 6 months – 1 year) after your last mortgage closed before you can refinance again.

How do I find a reputable refinance lender?

To choose a mortgage lender, you should shop around and compare Loan Estimates from multiple companies. Look at not just the interest rate, but also the APR, origination fees, and customer service reviews to ensure you're working with a partner who supports your goals.

Can I lose my house with a reverse mortgage?

With a reverse mortgage, you’re responsible for property taxes, homeowners insurance, and maintenance. If you don’t keep up with these things, the servicer could take your home before you’re ready to move out. What’s more likely to happen is that they’ll set aside funds for these items. You may give the home back to the servicer if you don’t sell or otherwise pay off the loan when you pass or move out.

Are there closing costs for a rate-and-term refinance?

Yes, a rate-and-term refinance typically comes with closing costs, which usually range from 3% – 6% of the loan amount. You may be able to roll these into your loan balance or take a slightly higher interest rate to have the lender cover them.

Can I sell my house after a cash-out refinance?

Yes, you can sell your home after a cash-out refinance, but you should check your loan documents for an owner-occupancy clause. This clause often requires you to live in the home for a set period before you can sell or rent it out.

The bottom line: Consider all types of refinance loans before choosing one

When looking to refinance, consider your financial goals first. What you plan to do will determine the loan options you have. It can also be worth checking into whether you want to refinance at all or go with another option like a Home Equity Loan.

If refinancing is right for you, you can prepare by getting your documentation together and looking at your credit report for mistakes and opportunities to pay down debt. If you’re ready to get started, you can apply online.

¹ Refinancing may increase finance charges over the life of the loan.

² Rocket Mortgage is a VA-approved lender, not endorsed or sponsored by the Dept. of Veterans Affairs or any government agency.

³ Rocket Mortgage is not acting on behalf of FHA or HUD.

⁴ To qualify for this offer, you must meet all standard FHA eligibility requirements. In addition, your total mortgage payment, including taxes and insurance, cannot exceed 38% of your income, your debt-to-income (DTI) ratio cannot exceed 45%, and you must have 12 months of verifiable housing history immediately prior to your application, no late payments 30 days or greater in the last 12-months, and no derogatory marks on your credit report. Not available on jumbo loans. Asset statements may be needed, no more than 1 day of non-sufficient fund fees are allowed in the most recent 2 months prior to application. Additional restrictions/conditions may apply.

⁵ Home Equity Loan product requires full documentation of income and assets, credit score and max loan-to-value (LTV), combined loan-to-value (CLTV), and home equity combined loan-to-value (HCLTV) ratios. Requirements were updated 11/19/25 and are tiered as follows: 680 minimum FICO with a max LTV/CLTV/HCLTV of 80%, 700 minimum FICO with a max LTV/CLTV/HCLTV of 85%, and 740 minimum FICO with a max LTV/CLTV/HCLTV of 90%. Your debt-to-income ratio (DTI) must be 50% or below. Valid for loan amounts between $45,000.00 and $500,000.00 (minimum loan amount for properties located in Michigan is $10,000.00). Product is a second standalone lien and may not be used for piggyback transactions. Product not available on Ameriprise products. Guidelines may vary for self-employed individuals. Some mortgages may be considered “higher priced” based on the APOR spread test. Higher‑priced loans in the State of New York are subject to additional regulatory requirements. Additional restrictions apply. This is not a commitment to lend.

⁶ The FHA Streamline program may have stricter requirements in some states. In order to qualify for the FHA Streamline program, an immediate .5% minimum reduction in interest and mortgage insurance premium is required. Some states may require an appraisal.

⁷ The VA Streamline program may have stricter requirements in some states. In order to qualify for the VA Streamline program, you must have a VA loan. The VA Streamline is only available on primary residences. Cash-out transactions are not allowed. In order to qualify for a VA Streamline, a 0.5% minimum reduction in interest rate on the previous fixed-rate loan must occur if the new loan will be a fixed rate or a 2% minimum reduction in interest rate on previous adjustable rate mortgage loan must occur; a minimum of 6 months of consecutive mortgage payments must be paid on the current loan at the time of application. Some states may require an appraisal. Additional restrictions/conditions may apply.

Rocket Mortgage is a trademark or service mark of Rocket Mortgage LLC or its affiliates.