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Types Of Mortgage Refinance: Which Option Is Right For You?

Feb 1, 2024



As a homeowner, refinancing a mortgage loan can be an important financial decision. Whether you’re looking to lower your monthly mortgage payment or take cash out against your home’s equity, applying for a refinance can help you reach certain milestones and achieve your personal goals.

With that said, you might not know which type of refinancing will best suit your needs. To decide between the primary types of refinance options, you’ll want to consider factors like your current mortgage type, your home’s value, your existing loan balance and whether you want to get rid of mortgage insurance. 

Let’s go over some of the most common types of mortgage refinance options pursued by homeowners, their key features and how to decide which one is the ideal choice for you.

Mortgage Refinance Options: At A Glance

Here’s a quick look at the types of refinances that may be available to you.

Type Of Refinance Purpose For Refinancing Standard Requirements
Rate-and-term refinance

Change the terms of your loan,

including the length and interest rate

You generally have a good financial situation,

including a qualifying credit score

and debt-to-income ratio (DTI)

Cash-out refinance

Take cash out to fund home renovations,

pay off debt and more

You've built enough equity in your home
Cash-in refinance Increase the amount of equity in your home

You have a large sum of money

available to out toward the mortgage balance

FHA Streamline refinance

Change the terms of your FHA loan

without a home appraisal

You have an FHA loan
VA Streamline refinance

Change the terms of your VA loan

without a home appraisal

You're a veteran, service member or surviving

spouse of a veteran with a VA loan

USDA Streamline refinance

Change the terms of your

USDA loan without a home appraisal

You have a USDA loan
Reverse mortgage Take cash out against the equity in your home

You're over the age of 62

with sufficient equity in your homes

No-closing cost refinance You don't have the funds to cover closing costs

You plan to live in your home for several years

and can afford a higher monthly payment

Short refinance You defaulted on your mortgage loan

You can prove to your lender that

you can afford the new monthly payments 

9 Types Of Refinances

While there are many types of mortgage refinances, here are nine options commonly used by homeowners today:

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1. Rate-And-Term Refinance

rate-and-term refinance allows borrowers to change the interest rate and loan terms of an existing mortgage. This tends to be a beneficial option when refinance rates are lower, and a borrower can pursue more favorable terms with their lender.

The size of the mortgage loan remains the same with a rate-and-term refinance. But depending on the changes made to the loan, you could potentially end up with lower monthly mortgage payments or pay down your mortgage faster than you’d originally planned.

2. Cash-Out Refinance

cash-out refinance lets you take advantage of the equity you’ve built in your home. With a cash-out refinance, you take out a new mortgage on your property for a larger sum than what you owe on the original home loan. You then receive the difference between the two loan amounts in cash. 

Keep in mind that a cash-out refinance doesn’t add a monthly payment to your plate. The larger loan replaces your current mortgage, and the monthly payment amount will be higher or lower depending on the new loan agreement.

If you’re considering a cash-out refinance, take the time to review the loan terms to have a complete understanding of how this type of mortgage refinance will affect your budget.

3. Cash-In Refinance

Unlike a cash-out refinance, a cash-in refinance involves the borrower putting a large sum of money into the refinancing process rather than taking it out.

By paying down a significant portion of your mortgage balance, you’ll reduce your loan-to-value ratio (LTV) and increase the amount of equity you have in your home, which could result in lower monthly payments or a lower interest rate.

A cash-in refinance tends to be best for individuals with underwater mortgages or homeowners who don’t yet have a substantial amount of home equity to access.

4. FHA Streamline Refinance

An FHA Streamline refinance can be a great option for homeowners with Federal Housing Administration (FHA) loans who are looking to lower their monthly payments and avoid a repeat of the FHA appraisal process. If you currently have a conventional loan, you won’t be able to switch to an FHA mortgage with this type of refinance.

Depending on the circumstances surrounding your FHA refinancing, you can choose between a credit qualifying streamline – where the lender checks your credit score and debt-to-income ratio (DTI) – or a non-credit qualifying streamline for your FHA loan.

5. VA Streamline Refinance

A VA Streamline refinance (also referred to as VA IRRRL) is an option available to military veterans and active service members with Department of Veterans Affairs (VA) loans. 

This type of streamline refinance allows VA loan borrowers to potentially lower their monthly payments and interest rates, shorten or lengthen their loan term, or switch from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage. VA IRRRL borrowers also pay a lower VA funding fee.

If you’re a veteran, service member or surviving spouse of a veteran with a VA loan, you can likely get a VA Streamline refinance – you’ll just need to provide proof of residence to your lender to qualify.

6. USDA Streamline Refinance

USDA Streamline refinance allows borrowers of U.S. Department of Agriculture (USDA) loans with little equity in their homes to potentially lower their interest rate and change their loan term. Borrowers may also be able to avoid additional home appraisals or inspections on their property during the refinance process.

Depending on your specific qualifications, you can choose between a USDA Standard Streamline or a USDA Streamline-Assist refinance.

Rocket Mortgage® doesn’t offer USDA loans at this time.

7. Reverse Mortgage

reverse mortgage is technically a type of refinancing option for borrowers over the age of 62 with sufficient equity in their homes. Borrowers who switch to a reverse mortgage don't have to make payments on their loan while they’re alive.

In fact, if you were to refinance with a reverse mortgage, you’d receive funds stemming from your home equity to be used for whatever you see fit. You could use the money to fund home improvements or consolidate credit card debt.

It’s important to note that you’d still be expected to pay certain fees related to homeownership and your mortgage over the loan’s term. Once you sell your home or pass away, your loan balance will be due to your lender. The balance will either be paid through the proceeds from the sale of the home or through payments made by your heirs after a standard refinance.

Rocket Mortgage doesn’t offer reverse mortgages at this time.

8. No-Closing-Cost Refinance

With a no-closing-cost refinance, the borrower doesn’t have to pay closing costs upfront. Instead, the closing costs are covered with a higher interest rate on the loan, or they’re rolled into the principal loan balance. Keep in mind that you’ll likely have to make a higher monthly payment over the course of the new loan.

This type of refinance is especially beneficial for those who only plan to live in their home for a few years, or need access to the funds they would typically use for closing costs to pay for expenses in other areas of their lives.

9. Short Refinance

A short refinance can be a great option for borrowers who have defaulted on their mortgage loan payments and are at risk of foreclosure.

With this type of refinance, your lender replaces your existing mortgage with a loan that has a reduced balance. The monthly payments are lowered to a level you can realistically afford. So, you get to keep your property, and your lender loses less money than if the home had been foreclosed or gone through a short sale.

It’s important to note that this type of refinance could hurt your credit depending on the circumstances surrounding the refinance. Your lender also has to approve a short refinance.

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How Much Does It Cost To Refinance?

The cost to refinance often depends on the type of loan and the method of refinancing you choose for the mortgage. For many of the refinancing options discussed above, you’ll need to pay a number of closing costs that average around 3% – 6% of the total loan balance.

Additionally, there may be specific fees tied to your chosen refinancing option that don’t apply to other types of refinances, like a VA funding fee. Before locking in your decision, review all your options carefully and assess what each one would entail for your finances.

What To Consider Before Refinancing Your Mortgage

When deciding among the different types of refinancing options, there are several factors you ought to take into consideration, including:

  • The type of mortgage loan you currently have
  • The type of borrower you are (for example, a veteran with a VA loan)
  • The financial goals you hope to achieve by refinancing
  • The amount of equity you have in your home
  • Your credit score
  • Your DTI ratio
  • Your LTV ratio
  • Your overall financial standing (for example, your ability to afford closing costs or pay off additional debt)

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

Need extra cash?

Leverage your home equity with a cash-out refinance.

FAQs About Home Refinancing Options

Learn more about the different types of home refinance options with the answers to these frequently asked questions.

How often can I refinance my home?

In legal terms, there isn’t a limit on how many times you can refinance. Whether you can refinance more than once will depend on specific lender requirements and personal factors.

How do I find a reputable refinance lender?

Finding a mortgage lender to help with your refinance is crucial to the refinancing process. It’s important to do your research and shop around for a lender that best fits your needs. Don’t be afraid to negotiate and find the best lender that can make the refinancing process easy and painless.

Can I lose my house with a reverse mortgage?

When refinancing with a reverse mortgage, you could lose your home if:

  • You don’t live in the home or use it as a primary residence.
  • You move out of the home or sell it.
  • You are away from the home for more than 6 months or 12 consecutive months.
  • You die and no spouse is listed on the home loan.
  • You stop paying your property taxes and homeowners insurance.
  • You don’t maintain the home according to FHA requirements.

Are there closing costs on a rate and term type of refinance?

Yes, borrowers could end up paying about 3% – 6% in closing costs for this type of refinance.

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

You can sell your house right after refinancing unless there is an owner-occupancy clause in your mortgage contract that requires you to occupy the home for a certain number of months before you can sell or rent it. To check for this clause, read through the loan documents you’ve received.

The Bottom Line: Consider All Types Of Refinance Loans Before Choosing One

Ultimately, the benefits of your refinance can outweigh the potential costs. You could be closer to achieving your personal goals without putting yourself at greater risk of being unable to pay off your loan in the long term. 

Are you ready to refinance your current home loan? Get started online today with Rocket Mortgage.

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Patrick Chism

Born and raised on a farm in the Ozarks, Patrick has a knack for making the best out of the worst situations. Where others see flooded farmland, he sees lakefront real estate. Where others see an infestation of bees, he sees free pollination and a upstart honey shop. Patrick’s articles will help you make the most out of the least, maximizing your returns while keeping a close eye on the wallet. When he’s not writing for Rocket Mortgage Patrick likes hiking, gardening, reading and making healthy foods taste like unhealthy foods.