Rate-and-Term Refinance vs. Cash-Out Refinance
A rate-and-term refinance adjusts the interest rate or loan term without changing the loan balance, while a cash-out refinance increases the loan balance to access home equity as cash.
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Rate-and-Term Refinance
Refinances the existing mortgage balance into a new loan with a different interest rate, term, or both, without increasing the amount borrowed.
- Can lower monthly payments or total interest paid if rates have improved
- Doesn't increase the loan balance or reduce home equity
- Doesn't provide access to cash from home equity
- Still involves closing costs that need to be recovered through savings over time
Cash-Out Refinance
Refinances the mortgage into a new, larger loan, with the difference between the new and old balance paid to the homeowner in cash.
- Provides access to home equity as cash for other uses
- Can consolidate higher-interest debt into the mortgage's typically lower rate
- Increases the total mortgage balance and reduces home equity
- Often carries a slightly higher rate than a rate-and-term refinance
Which one makes sense for you?
A rate-and-term refinance suits homeowners primarily looking to improve their rate or adjust their loan term without touching their equity. A cash-out refinance suits those who specifically need to access home equity for another purpose, generally at a slightly higher rate than a rate-and-term-only refinance.
Key cost factors.
- Whether the primary goal is lowering the rate/payment or accessing cash
- Amount of equity available to draw from in a cash-out scenario
- Current interest rate compared to available refinance rates
- Impact on total interest paid over the life of the new loan
Before you decide.
- Do I need access to cash, or am I primarily looking to improve my rate or term?
- How much equity would remain after a cash-out refinance, and does that meet lender minimums?
- What's the rate difference between a rate-and-term and cash-out option for my situation?
Frequently asked questions.
Does a cash-out refinance affect my home equity percentage?
Yes — because the loan balance increases, a cash-out refinance directly reduces the percentage of equity you hold in the home immediately after closing.
All figures on this page are illustrative examples for general education, not quotes, appraisals, or guarantees of actual pricing. Actual costs vary by provider, location, project scope, and market conditions — always get a specific quote before making a purchasing decision.
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