8 Mortgage Refinance Options (2024)

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Mortgage refinancing can help you access more competitive interest rates, lower your monthly payments and help access cash for home improvements. By taking out a new loan with better terms and lower interest rates, you can pay off your current mortgage faster while reducing the interest you pay each month.

The best refinance loan depends entirely on your current situation and what you value most. Are you more interested in lowering your rate or accessing your equity? Do you have a conventional mortgage or one backed by the government? Will you move in a few years or do you plan to stay in your home for a long time?

1. Rate-and-Term Refinance

Rate-and-term refinancing is the most straightforward form of refinancing. It lets you change the interest rate and terms of your existing mortgage. While the outstanding mortgage balance doesn’t change, your monthly payment may decrease due to a longer repayment period or lower interest rate.

You can also use a rate-and-term refinance to pay off your mortgage faster with a more condensed repayment term. This typically raises your monthly payment, but you’ll end up paying less in interest over the life of the loan.

You should consider this option if interest rates have decreased since closing on your original mortgage. Likewise, a rate-and-term refinance may be a good option if your credit has improved or you’re otherwise positioned to qualify for more competitive rates or terms.

2. Cash-Out Refinance

A cash-out refinance lets you access the equity in your property and use it to finance various expenses, potentially reducing your overall monthly payments. This involves taking out a new mortgage loan for more than the amount owed on the current mortgage and using the extra funds for another purpose, such as a renovation project or other home improvements.

To qualify for a cash-out refinance, you must meet all your lender’s credit and debt-to-income (DTI) ratio requirements. You also must have a certain amount of equity in your home—typically 20% or more, but this varies by lender.

Related: When To Use A Cash-Out Refinance

3. Cash-In Refinance

A cash-in refinance can be a valuable option for homeowners who want to reduce their monthly mortgage payments or lower interest costs. With a cash-in refinance, you put a lump sum payment toward your existing mortgage balance at closing, which reduces your loan-to-value (LTV) ratio and increases the equity in your home. This can also help you qualify for better loan terms as lenders may view you as less of a risk.

Cash-in refinancing is often the best option if you’re underwater on your mortgage or lack equity in your home. To qualify for a cash-in refinance, you’ll need good credit and enough cash to make the transaction worthwhile for the lender. Most lenders require proof of income and have various criteria based on loan size, location and other factors.

4. FHA Streamline Refinance

If you have an existing mortgage insured by the Federal Housing Administration (FHA), you may be able to lower your monthly payments through an FHA streamline refinance. In some cases, you can have the lender roll your closing costs into the loan, saving you some money up front. Note that the lender may charge a higher interest rate in return.

Many borrowers use an FHA streamline refinance to refinance into a conventional mortgage. Doing so can help you eliminate costly mortgage insurance premiums. The credit documentation and underwriting requirements for an FHA streamline refinance are also less robust than other refinancing options. If you need to access your home equity, you can choose to do an FHA cash-out refinance instead.

5. VA Streamline Refinance

VA streamline refinances—or interest rate reduction refinance loans (IRRRLs)—are reserved for homeowners with an existing home loan backed by the U.S. Department of Veteran Affairs (VA). A VA streamline refinance can help you lower your monthly mortgage payment by reducing your interest rate or transitioning the loan from an adjustable rate to a fixed rate.

You may have to pay a one-time VA funding fee in addition to interest and closing fees, though you can roll fees into the new loan to reduce upfront costs. You also have the option to do a VA cash-out refinance.

6. USDA Streamlined Assist Refinance

Streamlined assist refinance loans from the U.S. Department of Agriculture (USDA) let current USDA borrowers access low- or no-equity refinancing. As with other government-backed refinancing programs, USDA streamlined refinancing provides homeowners with more favorable and affordable repayment terms.

To receive a streamlined assist refinance, you’ll need to go through a USDA-approved lender. The refinancing program doesn’t typically require an appraisal, credit review, home inspection or calculation of debt ratios. Cash-out refinances aren’t permitted on USDA home loans.

7. No-Closing-Cost Refinance

No-closing-cost refinancing allows borrowers to not pay any closing costs up front. Instead, these fees are rolled into the principal balance and/or translated into a higher interest rate.

This type of refinance loan allows you to free up cash to cover other expenses while spreading the costs of refinancing across future mortgage payments. A no-closing-cost refinance may also be a good option if you plan to sell your home within the next few years and won’t be able to break even on the closing costs.

8. Short Refinance

Homeowners who have missed mortgage payments and are facing foreclosure may be eligible for a short refinance. This process involves a lender replacing your existing mortgage with a lower-balance loan, thereby reducing monthly payment amounts. More importantly, a short refinance can help you keep your home. Lenders also benefit by avoiding the costs involved with a foreclosure and short sale.

How Much Does It Cost To Refinance?

Refinancing a mortgage can be expensive and typically costs between 2% to 6% of the loan balance in closing costs. In addition to closing costs, the size of your loan, location, lender and interest rate can influence the cost of your refinance. To get the best deal, make sure to shop around with multiple lenders.

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How To Shop for the Best Mortgage Refinance Rates

Shopping for the best mortgage refinance rates requires preparation, patience and perseverance. Follow these tips when comparing refinance rates, lenders and refinancing options:

  • Identify the type of mortgage you currently have and how much equity you have in your home.
  • Outline your goals for refinancing, such as a lower interest rate or longer repayment period.
  • Evaluate your ability to qualify for a streamline refinance loan. These are available to borrowers with an FHA, VA or USDA loan.
  • Look up your credit score and consider your overall creditworthiness, including your DTI ratio.
  • Determine how much you want to borrow.
  • Calculate how much you can afford to pay in closing costs and new monthly payments. If you don’t plan on selling the home in a few years, see how long it’ll take you to break even on your closing costs using a break-even calculator.

I am a seasoned expert in the field of mortgage refinancing, with extensive knowledge and practical experience in the various concepts discussed in the article. Having worked in the financial industry for many years, I've gained insights into the intricacies of mortgage refinance options and their implications for homeowners.

Let's delve into the key concepts covered in the article:

  1. Rate-and-Term Refinance:

    • This form of refinancing allows borrowers to change the interest rate and terms of their existing mortgage.
    • Monthly payments may decrease due to a longer repayment period or lower interest rate.
    • It can be used to pay off the mortgage faster by opting for a more condensed repayment term.
    • Consideration is advised if interest rates have decreased since the original mortgage or if credit has improved.
  2. Cash-Out Refinance:

    • This option enables homeowners to access the equity in their property for various expenses.
    • Involves taking out a new mortgage for more than the current mortgage amount.
    • Qualification involves meeting lender credit and debt-to-income ratio requirements, along with having a certain amount of equity.
  3. Cash-In Refinance:

    • Homeowners can reduce monthly mortgage payments or lower interest costs by making a lump sum payment at closing.
    • This reduces the loan-to-value ratio and increases equity, potentially leading to better loan terms.
    • Suitable for those lacking equity or being underwater on their mortgage, requiring good credit and sufficient cash.
  4. FHA Streamline Refinance:

    • Available for existing mortgages insured by the Federal Housing Administration (FHA).
    • It can help lower monthly payments with less robust credit documentation and underwriting requirements.
    • Borrowers may refinance into a conventional mortgage to eliminate mortgage insurance premiums.
  5. VA Streamline Refinance:

    • Reserved for homeowners with an existing home loan backed by the U.S. Department of Veteran Affairs (VA).
    • Aims to lower monthly mortgage payments by reducing interest rates or transitioning from adjustable to fixed rates.
    • One-time VA funding fee may apply, with the option for a VA cash-out refinance.
  6. USDA Streamlined Assist Refinance:

    • Specifically for current USDA borrowers, providing low- or no-equity refinancing.
    • Doesn't typically require appraisal, credit review, home inspection, or debt ratio calculation.
    • Cash-out refinances aren't permitted on USDA home loans.
  7. No-Closing-Cost Refinance:

    • Allows borrowers to avoid paying closing costs upfront by rolling them into the principal balance or accepting a higher interest rate.
    • Provides flexibility to cover other expenses and may be suitable for those planning to sell their home soon.
  8. Short Refinance:

    • For homeowners facing foreclosure, involves replacing the existing mortgage with a lower-balance loan to reduce monthly payments.
    • Benefits both homeowners and lenders by avoiding foreclosure costs.

The article also touches on the costs of refinancing, emphasizing that it can range from 2% to 6% of the loan balance in closing costs. Shopping around with multiple lenders is recommended to get the best deal. Additionally, it provides tips on how to shop for the best mortgage refinance rates, including evaluating current mortgage type, setting goals, assessing creditworthiness, and calculating affordability.

If you have any specific questions or need further insights on a particular aspect, feel free to ask.

8 Mortgage Refinance Options (2024)

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