Refinancing your mortgage: rate-and-term vs cash-out
A rate-and-term refinance replaces your mortgage with a new one to change the rate, the term or both, without taking cash out. A cash-out refinance replaces it with a larger loan and pays you the difference in cash, which uses up home equity; the CFPB notes it can carry higher closing costs and a higher rate. Either way you pay closing costs again, so a refinance generally makes sense only if you'll keep the new loan past the break-even point: total costs ÷ monthly savings.
Rate-and-term refinance
Common goals: a lower rate, a shorter term (for example 30 to 15 years), moving from an ARM to a fixed rate, or dropping FHA mortgage insurance by moving to a conventional loan. You'll go through underwriting, an appraisal (sometimes waived) and a new Loan Estimate and Closing Disclosure.
Cash-out refinance
You borrow more than you owe and receive the difference. The CFPB lists it as an alternative to a HELOC or home equity loan and warns that it can have higher costs. It also resets your whole mortgage balance to a new rate. If your current rate is low, a second-lien option may cost less overall. Because your home secures the loan, falling behind can lead to foreclosure.
Is refinancing worth it? Run the break-even
Hypothetical example: costs of $6,000 and savings of $200 a month give a break-even of 30 months. If you might move in two years, the refinance likely won't pay off.
Also compare total interest over the time you'll actually keep the loan. Restarting a 30-year term can lower the payment while raising lifetime interest. Our refinance break-even calculator shows both.
Refinance checklist
- Check your current loan for a prepayment penalty
- Know your balance, rate and remaining term
- Get Loan Estimates from at least three lenders, including your current servicer
- Compare section A fees and the APR, and ask about lender credits
- Decide whether to roll costs into the loan or pay them in cash
- Ask about rate lock length and float-down options
Frequently asked questions
How do I know if refinancing is worth it?
Divide total closing costs by your monthly savings to get break-even months, and compare that with how long you expect to keep the loan. Also compare total interest over that period.
Does a cash-out refinance cost more than a rate-and-term refinance?
The CFPB notes that cash-out refinances can have higher closing costs and higher rates. Compare Loan Estimates for both.
Can I refinance with my current lender?
Yes, and it's worth getting their quote, but compare it with other lenders' Loan Estimates.
Will refinancing restart my loan?
Usually yes. You get a new loan with a new term. You can choose a shorter term to avoid stretching out repayment.
Sources
- CFPB: What other loans are similar to a HELOC? (cash-out refinance) (accessed October 29, 2026)
- CFPB: Loan Estimate explainer (accessed October 29, 2026)
- CFPB: Closing Disclosure explainer (accessed October 29, 2026)
- CFPB: What are discount points and lender credits? (accessed October 29, 2026)
- CFPB: What is a prepayment penalty? (accessed October 29, 2026)
- CFPB: Request and review multiple Loan Estimates (accessed October 29, 2026)
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