Mortgage Refinance Options – Cash-Out Refinance vs. Rate and Term Refinance
Simply put, a refinance replaces your existing mortgage with a new mortgage of different terms. There are two main types of refinances: a “cash-out” refinance and a “rate and term” refinance.
What is a cash-out refinance?
A cash-out refinance enables homeowners to tap into their equity and pull cash out of their property to use for debt consolidation, home improvements, investing, or a number of other reasons. Whether you want to pay off high-interest credit card debt, remodel your kitchen, or need access to your equity for a different reason, a cash-out refinance may be the solution.
What is a rate and term refinance?
The goal of a rate and term refinance is to lower your monthly mortgage payment by reducing the interest rate, lengthening the term of the loan, or by removing mortgage insurance (also known as MI or PMI). You can also shorten the term of your loan with a refinance if you wish (i.e. going from a 30-year to a 15-year mortgage). Below are a few examples of how you can reduce your mortgage payment with a rate and term refinance.
Example 1: The interest rate on your current mortgage is 6.5% (6.6% APR), but if you refinance, you would be able to obtain a 4.75% interest rate (4.8% APR). With all other factors being the same, this refinance would reduce your monthly payment.*
Example 2: Your current mortgage term has 22 years remaining before your home is paid off. If you refinance into a new 30-year loan, your monthly payment will decrease (as long as your interest rate on the new mortgage is not significantly higher) because you are paying back the remaining loan balance over a longer period of time.
Example 3: You purchased your home with an FHA loan and a 3.5% down payment which means that you will have monthly mortgage insurance for as long as you have the FHA loan. Your home has increased significantly in value since you purchased it, and now you have the 20% equity that is required to remove the monthly mortgage insurance by way of refinancing into a conventional loan.
*Interest rate listed is for informational/example purposes only and may not represent current rates available.
When to refinance your mortgage?
Refinancing does not make sense for every homeowner in every situation. For example, if you already have a very low interest rate and do not need access to any of your equity, a refinance may not provide you with a tangible benefit. At Solcosta Home Loans, we can sort out all of your refinance options as well as help you determine whether refinancing would make sense based on your short and long-term goals. Feel free to contact us to discuss your options or request a free, personalized rate quote.
Working with Solcosta Home Loans
- Since we are a mortgage broker and not a bank, we have the ability to shop multiple lenders to get you the best deal possible.
- We offer a wide variety of loan products, and we can help you find the loan that is right for you!
- We are fast and efficient and have the ability to close most of our loans in 18 days or less.
- We are locally owned and operated in Northern California. That means when you call or email us, you will be speaking with us directly.