Types of mortgage refinance: How to choose
Key takeaways
- Rate-and-term refinancing is the most common option, and it involves replacing your current mortgage with a new loan that has a different interest rate, loan term or both. Other options include cash-out, cash-in and streamline refinancing.
- The right refinance type depends on your goal: lowering your rate, accessing equity, reducing your balance or fast-tracking the process.
- Shopping with multiple lenders is the single most effective way to lower your rate. Checking only your current lender means you may be leaving money on the table.
Refinancing your mortgage replaces your current loan with a new one — ideally at a lower rate, a better term or both. Most borrowers never find out if they’re leaving money on the table: Bankrate’s Hidden Homeownership Tax research found that 87% of all 2025 borrowers paid above the most competitive rate available, costing the typical borrower $3,343 a year, or $278 a month, over the life of the loan.
This page breaks down every refinance type, who each is actually for and what each will cost you — so you can make the call with confidence.
Types of mortgage refinance
| Refinance type | Who it fits | Primary goal | Typical trade-offs |
| Rate-and-term | Homeowners with a credit score of 780 or higher whose current rate is above today’s market average | Lower the interest rate, adjust the loan length (e.g., 30 to 15 years), or change the loan structure (e.g., ARM to fixed) | Resetting the clock on a 30-year loan means you pay more interest long-term unless you shorten the term; often requires full closing costs |
| Cash-out | Homeowners with significant equity funding a high-value, concrete goal — like a renovation that adds to the home’s worth | Access home equity as cash while replacing the existing mortgage | Higher loan balance and typically a higher rate than a rate-and-term refinance; monthly payments may increase even if the rate drops |
| Cash-in | Homeowners who want to drop their loan-to-value ratio to eliminate private mortgage insurance (PMI) or secure a lower rate | Make a large lump-sum payment toward the principal balance during the refinance process | Converts liquid savings into home equity, which can’t be easily accessed in an emergency |
| Streamline | Borrowers with an existing FHA, VA or USDA loan | Refinance faster with reduced documentation, no appraisal and lenient credit requirements | Rate reduction may be modest; some programs still require closing costs |
| No-closing-cost | Homeowners who want a lower rate immediately but lack the liquid savings to cover upfront closing costs | Refinance without paying out-of-pocket fees on the day of closing | Closing costs are rolled into the loan balance or offset by a higher rate — either way, you pay more over time |
| Short refinance | “Underwater” or “upside-down” homeowners who owe more on their mortgage than the property is currently worth on the market | Reduce an underwater mortgage balance to align with the home’s current market value | Requires lender approval to forgive part of the balance; difficult to qualify for, may hurt your credit score and could carry tax implications on forgiven debt |
| Reverse mortgage | Homeowners 62 or older who plan to stay long-term and need supplemental income — after exhausting safer alternatives | Convert home equity into tax-free payments or a line of credit without monthly loan payments | Balance grows and equity shrinks every month; foreclosure risk if taxes or insurance lapse; heirs may owe more than expected |
Rate-and-term refinance
Rate-and-term refinancing is the most common type of refinance. It replaces your existing mortgage with a new one at a different interest rate, a different loan term (the length of time you have to repay) or both.
When market rates are lower than your current rate, refinancing could lower your monthly payment and the total interest you pay. You can also use it to pay off your mortgage faster by refinancing into a shorter loan term. This doesn’t change the amount you owe, however, so your monthly payments might be higher.
Plug the numbers into Bankrate’s refinance calculator to understand the impact that a drop in rates could have on your payments.
Rate snapshot: July 7, 2026
A rate-and-term refinance makes sense if you can meaningfully lower your rate and plan to stay in the home long enough to break even on closing costs. A drop of 0.75 to 1 percentage point or more is generally worth running the numbers on, though even a smaller drop can pay off on a large loan balance or long remaining term. If your rate is above 7% and your credit score is 780 or higher, today’s market is worth a serious look.
Compare today’s refinance rates
The average homeowner leaves thousands on the table by not comparing rates. Compare refinance offers and see what you could actually save before you commit.
Learn moreCash-out refinance
A cash-out refinance allows you to turn your home equity into cash. You’ll refinance your mortgage the same way you would with a rate-and-term refi, only to a bigger loan amount based on how much equity you plan to tap.
Typically, you can take out up to 80% of your home’s value, and you’ll receive the difference between the loan amount and your outstanding mortgage in cash.
Some borrowers use this cash to further their financial goals, such as renovating their home or consolidating more expensive debt. As a rule, however, avoid using it for short-term expenses, like a vacation or wedding, which can be a dangerous financial trap and put your long-term housing security on the line.
Proceed carefully. A cash-out refinance increases your loan balance, resets your equity and typically comes with a higher rate than a standard rate-and-term refinance — meaning your monthly payment will likely go up, not down. If you fall behind, the consequences are severe: your home is the collateral.
That said, there are situations where it can make sense: funding a home renovation that adds value or consolidating high-interest debt where the math clearly works in your favor. If you’re considering it for any other reason, such as a major purchase, medical bills or a temporary financial shortfall, exhaust other options first.
Never use a cash-out refinance for discretionary spending. The risk isn’t worth it.
Learn more: Current cash-out refinance rates
Cash-in refinance
With a cash-in refinance, you’ll make a lump-sum payment to lower your mortgage balance. This new, lower balance is then refinanced to a new mortgage at a different interest rate, term or both.
A cash-in refinance reduces your outstanding mortgage principal and lowers your loan-to-value (LTV) ratio, which can help you qualify for a lower interest rate. With a reduced LTV ratio, you might also be able to eliminate private mortgage insurance (PMI).
If you have a lump sum available — from an inheritance, a bonus or savings — and want to lower your balance, eliminate PMI or qualify for a better rate, a cash-in refinance is worth considering. Calculate your break-even point first to confirm that the savings justify the closing costs.
One word of caution: You’re moving liquid cash into home equity, which is not easily accessible in an emergency. Make sure you have sufficient reserves before committing a large sum to this approach.
Streamline refinance
Streamline refinances are an efficient way to get a lower rate on an FHA, VA or USDA mortgage because they involve relatively little paperwork and don’t require a credit check or appraisal. The result: potentially faster turnaround times and lower closing costs. These programs are called:
- FHA streamline refinance
- VA interest rate reduction refinance loan (IRRRL), also known as a VA streamline refinance
- USDA Streamlined and Streamlined-Assist
If you have an FHA, VA or USDA mortgage and current rates are lower than what you’re paying, a streamline refinance is likely your fastest and lowest-friction path to savings. The reduced documentation requirements and waived appraisal mean lower closing costs and a quicker close.
Veterans and current military members should take note: Bankrate’s Hidden Homeownership Tax research found that 81% of VA borrowers are overpaying on their mortgages. If that could be you, a VA IRRRL could save you money. Check today’s VA refinance rates to see if the numbers work in your favor.
Learn more: Current FHA refinance rates
No-closing-cost refinance
In a no-closing-cost refinance, you skip paying closing costs upfront — typically 2% to 5% of your loan amount, or roughly $6,000 to $15,000 on a $300,000 loan. Instead, you’ll roll those costs into your loan balance, accept a higher rate, or both.
A no-closing-cost refinance can be tempting since it eliminates the need for you to have cash ready at closing. However, depending on how long you plan to stay in the home, that convenience can cost you significantly more in the long run. Bankrate’s refinance break-even calculator can help you run the math on different scenarios.
If you don’t have cash on hand for closing costs but you qualify for a meaningfully lower rate, this option lets you refinance without an upfront payment. Just be clear on what you’re trading: higher loan balance, a higher rate or both. Paying closing costs upfront almost always costs less.
Short refinance
A short refinance is an option if you owe more on your mortgage than the home is currently worth — a situation known as being “underwater.” The lender agrees to refinance the loan to match the home’s current market value, effectively writing off a portion of what you owe. For the lender, this may be preferable to a costly foreclosure.
Only consider this if you’re genuinely underwater and struggling to keep up with payments. Short refinances are difficult to qualify for, depend entirely on the lender’s willingness and can seriously damage your credit score. There may also be tax implications on the forgiven debt — consult a tax advisor before pursuing this route. If you’re in financial distress, contact a HUD-approved housing counselor before approaching your lender.
Reverse mortgage
A reverse mortgage lets homeowners aged 62 or older borrow against their home equity without making monthly payments. The loan balance grows over time as interest accrues, and the loan comes due in full when you sell, move out or die.
Understand the risks before you go further. Reverse mortgages are among the most aggressively marketed financial products targeting older homeowners, and the consequences of misunderstanding their terms can be severe. Your loan balance grows — not shrinks — every month, steadily eroding the equity you’ve built. If you fall behind on property taxes, homeowners insurance or basic home maintenance, the lender can foreclose. Heirs who want to keep the home must pay off the full loan balance, which is often larger than expected.
In most cases, there are better alternatives. If you need income or liquidity, a HELOC or home equity loan gives you access to your equity without the compounding debt and foreclosure risk of a reverse mortgage. Downsizing is another option worth considering.
If you’re still exploring a reverse mortgage, only work with a HUD-approved HECM counselor before signing anything. It’s required by law and genuinely worth the time.
How to choose the right mortgage refinance option
The right refinance type depends on your goal. Here’s how to match your desired outcome with the best refinance option:
- If your goal is a lower rate or payment: Start with a rate-and-term refinance. If you have an FHA, VA or USDA loan, check whether a streamline refinance gets you there faster.
- If your goal is to pay off the loan faster: A rate-and-term refinance into a 15-year mortgage will save significantly on total interest, though your monthly payment will likely be higher.
- If your goal is accessing cash: Exhaust home equity loan and HELOC options before considering a cash-out refinance. If you proceed with cash-out, use it only for investments that add clear financial value.
- If your goal is to reduce your balance or eliminate PMI: A cash-in refinance may be the most direct path if you have a lump sum available.
- If you’re underwater: A short refinance depends on lender willingness. Contact a HUD-approved housing counselor first.
In every case, calculate your break-even point and compare offers from at least three lenders before committing.
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