Rate-and-Term Refinance

This is a basic form of refinancing that changes either the interest rate of the loan, the term (repayment length) of the loan or both. This can reduce your monthly payment or help you save money on interest. The amount you owe generally won’t change unless you roll some closing costs into the new loan.

Cash-Out Refinance
When you do a cash-out refinance, you’re using your home to take cash out to spend. This increases your mortgage debt but gives you money that you can invest or use to fund a goal, like a home improvement project. You can also secure a new term and interest rate during a cash-out refinance.

Cash-In Refinance
With a cash-in refinance, you make a lump sum payment in order to reduce your loan-to-value (LTV) ratio, which cuts your overall debt burden, potentially lowers your monthly payment and also could help you qualify for a lower interest rate. Before making a cash-in refinance, you’ll want to evaluate whether paying the lump sum would deprive you of more lucrative opportunities or needlessly drain your savings.

No-Closing-Cost Refinance
A no-closing-cost refinance allows you to refinance without paying closing costs upfront; instead, you roll those expenses into the loan, which will mean a higher monthly payment and likely a higher interest rate. A no-closing-cost refinance makes most sense if you plan to stay in the home short-term.

Debt Consolidation Refinance
Similar to cash-out refinances, debt consolidation refinances give you cash with one key difference: You use the cash from the equity you’ve built in your home to repay other non-mortgage debt, like credit card debt. Your mortgage debt will increase, but because mortgage rates are usually lower than those for other forms of debt, this can save you money in the long run. Plus, you might be able to take advantage of the mortgage interest deduction.

The cost is dependent on a couple of factors, such as your lender and the value of your house. Refinancing usually comes with closing costs, so you should determine whether getting a new mortgage makes financial sense for your budget. These costs can run between 2% and 6% of the amount you refinance. Common closing costs include discount points, an origination fee and an appraisal fee.

You’ll need to calculate the break-even point to determine whether you’ll stay in your home long enough to recoup the closing costs and benefit from the savings of the refinance.

Refinancing a mortgage can have some impact on your credit, but it’s usually minimal. This can occur for multiple reasons:

• Mortgage lenders conduct a credit check to see if you qualify for a refinance, and this appears on your credit report. A single inquiry can shave up to five points off your score.
• If you plan to apply for other types of debt, such as a car loan or credit card, in addition to refinancing, your credit score can also be affected.
• When you refinance, you’re closing one loan and opening another. Your credit history makes up 15 percent of your score, so having one loan close and then taking on a new one shortens the duration, impacting your score.

In general, these effects will only be felt for a short period of time. If you’re concerned about hurting your score while you compare refinance offers, try to shop for loans within a 45-day window. Any credit pulls related to your refinance in this timeframe will only be counted as one inquiry.

Pros

• You could lower your interest rate.
• You could lower your mortgage payment and create more space in your monthly budget.
• You could decrease the term of your loan and pay it off sooner.
• You could tap into your home’s equity and take cash out at closing.
  You could consolidate debt — some homeowners use refinancing to put student loans or other debts into one simple payment.
• You could change from an adjustable-rate to a fixed-rate mortgage, or vice versa.
• You might be able to cancel private mortgage insurance premiums to avoid paying unnecessary fees.

Cons

• You’ll have to pay closing costs.
• You might have a longer loan term, adding to your costs and delaying your payoff date.
• You could have less equity in your home if you take cash out.
• You might need to deal with borrower’s remorse if rates drop substantially after you close.
• It’s not an overnight activity: The refinancing process can take between 15 and 45 days or more.
• Your credit score will temporarily take a hit.