Homeowners have several options when it comes to a mortgage refinance:
- A "cash-in" refinance: they bring cash to the settlement to reduce the size of the principal remaining on their home loan
- A "cash-out" refinance: they take some of the equity out of their home and therefore increase the size of the principal remaining on their home loan
- A "rate-and-term" refinance: they simply adjust the interest rate and term of the mortgage while maintaining the original remaining principal amount. Instead of shrinking or enlarging the balance of the mortgage, this option leaves it unchanged.
Rate and term refinance
Homeowners have a variety of reasons for refinancing and each reason can indicate that one refinance option or another makes the most sense. Before choosing a new home loan, think about your goals for refinancing. If you want to pay off your loan faster, see if you can afford the payments on a shorter-term loan. If you are focused on reducing your monthly mortgage payments, a lower rate or a longer mortgage term might be a better choice, so check out today's mortgage rates and use a mortgage calculator to estimate your savings.
A rate-and-term refinance works best for borrowers who want to take advantage of lower interest rates to reduce their payments or to reduce the overall amount of interest they will pay on their mortgage. This type of refinance is also valuable for homeowners who want to completely pay off their mortgage before a certain date, such as retirement or when their children go to college.
Just remember to calculate the closing costs when evaluating your refinance. Borrowers have several options for paying closing costs, such as wrapping them into the principal balance of the loan, paying them in cash or paying a higher interest rate to cover the costs. HSH’s Tri-Refi Calculator can help you see how those options will work out for you.
Michele Lerner contributed to this answer
More help from HSH.com
Can we do a "cash-in" refinance?
How do I remove or add a name to a home loan?In general, the only way to remove a name from your mortgage will be to refinance or pay off the debt. This is also true when trying to add names to the mortgage. Lenders will not add nor remove names from such an obligation without the opportunity to ensure that the other borrowers have the ability to pay.
I'm an inexperienced refinancer. What can I expect?Q: I owe 56,000 on my eleven year old variable rate mortgage at 8%.I have good credit, have been in my home for 11 years and want a 15-year fixed-rate mortgage. While I have a good income, I have no cash for closing costs. Do I need to pay points and fees? Do I need an appraisal? What can I expect when I approach the bank for a refinance?A: If your credit is good and you have equity in your home, you should be able to refinance to a 15-year fixed rate. Lenders will require an appraisal of the property, but you should be able to build the cost of refinancing into the loan amount, or might be able to trade it off in exchange for a slightly higher-than-market interest rate. As the bank about your loan options, and expect that you'll need to fully document your income, debts and assets.
I'm trying to refinance a jumbo loan.
Is there a ten year refinance mortgage out there?Almost any lender that offers a fixed-rate mortgage will offer a 10-year mortgage. Mortgage rates for a 10-year mortgage usually aren't any better than the rates offered for a 15-year mortgage. That said, be sure to shop around to find a competitive rate. Getting a fixed-rate mortgage with a term as short as 10 years will save you a lot of money on interest costs.