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If you’re thinking about a mortgage refinance, you’re in good company. Refinance activity climbed to its fastest pace in four years, according to a March 2026 weekly survey from the Mortgage Bankers Association.
However, with a range of refinance options available, it’s essential to understand how each one works so you can choose the best fit for your financial priorities.
Keep in mind that refinancing isn't free. Much like your original mortgage, lenders will typically review your credit, income and debt, and you’ll likely have to pay refinance closing costs.
At a glance: Types of mortgage refinance loans
Here are common types of home refinance loans and examples of what they’re best for.
| Refinance type | What it does | Best for |
|---|---|---|
| Rate and term | Replaces your existing mortgage with a new one | Lowering monthly payments and switching loan types |
| Cash-out | Replaces your existing mortgage with a larger one and you pocket the difference | Tapping equity and funding major expenses, like home improvements |
| Cash-in | Replaces your existing mortgage while you make a large, one-time payment at closing to reduce the new loan balance | Paying off mortgage faster and qualifying for a lower rate |
| Limited cash-out | Replaces your existing mortgage and lets you receive a small amount of cash back | Borrowing a small amount of cash |
| No-closing-cost | Replaces your existing mortgage and fees are rolled into the loan or offset by a higher rate | Homeowners who are short on upfront cash |
| Streamline | Replaces an existing FHA, VA, USDA loan with a new one through a simplified process | Replacing an existing government-backed loan with less paperwork |
| Reverse mortgage | Replaces an existing reverse mortgage with a new one | Homeowners age 62+ whose primary residence has increased in value and want to tap more of their equity for additional funds during retirement |
» MORE: Today’s refinance mortgage rates
Deep dive: Types of mortgage refinance loans
Rate and term refinance
What it is
This common refinance option replaces your existing mortgage with a new mortgage. Borrowers often use a rate and term refinance to reduce monthly payments, pay off their loan faster (e.g., switching between a 30-year and 15-year term) or move between loan types, such as from an adjustable rate to fixed rate.
With a traditional rate and term refinance, only your interest rate and loan term change. Your principal balance generally remains the same and you don’t receive cash back at closing.
Best for
- Lowering your interest rate and reducing monthly mortgage payments
- Switching between an adjustable-rate mortgage (ARM) and fixed-rate mortgage
- Building equity faster
Examples
- You want to replace your current 30-year mortgage at 7% with a new 30-year loan at 5.75%.
- You want to swap your ARM at the end of its fixed period for a 15-year fixed-rate loan.
- You want to refinance from a 30-year to a 15-year mortgage to build home equity faster and reduce your total interest costs.
» MORE: Best mortgage refinance lenders
Cash-out refinance
What it is
A cash-out refinance replaces your current mortgage with a larger mortgage, allowing you to take the difference in cash at closing. Cash-out refinances work best when your home value has appreciated.
Best for
- Getting cash out of your house for a major expense, such as home improvements, education costs or a new business venture
- Lowering your interest rate, changing your loan term or switching loan types
- Potential mortgage interest tax deduction if you use the cash for qualified home improvements
Example
- Your home value has risen to $550,000 and you owe $200,000 on your current mortgage. You borrow up to 80% of the home's appraised value — in this case, $440,000. After paying off the existing $200,000 balance, you receive up to $240,000 in cash to use for major expenses like a kitchen remodel or your child’s college tuition.
» MORE: Best cash-out refinance lenders
Cash-in refinance
What it is
A cash-in refinance is similar to a rate and term refinance, but with one key difference — you take the extra step of making a lump sum payment at closing to reduce your loan balance. Think of it as a second down payment on your home. By lowering your principal, you may qualify for better loan terms, such as a lower rate or lower monthly payments.
🤓 Nerdy Tip
If you’re a homeowner who has come into extra money, a cash-in refinance could be a worthwhile option to strengthen your equity position. Best for
- Lowering your monthly payments and total borrowing costs
- Removing private mortgage insurance (PMI)
- Paying your mortgage off faster if you qualify for a shorter-term loan
Examples
- You want to qualify for a lower interest rate by reducing your loan balance.
- You’re close to the 20% equity threshold and want to eliminate PMI.
- You recently received a windfall and want to lower your monthly payments.
Limited cash-out refinance
What it is
A limited cash-out refinance is a conventional mortgage option that sits in between a rate and term refinance and cash-out refinance. Under Fannie Mae guidelines, it’s designed for borrowers who want to tap a small amount of equity while still securing favorable loan terms. Freddie Mac offers a similar option called a “no cash-out” refinance.
Did you know...
Limited cash-out and no cash-out refinance borrowers can receive the greater of 1% of the new loan amount or $2,000 in cash back after paying off the existing mortgage and closing costs, according to Fannie Mae and Freddie Mac guidelines. Best for
- Lowering your interest rate, changing your loan term or switching loan types
- Accessing a limited amount of cash
- Reducing risk
Examples
- You want to use the extra cash to cover closing costs rather than paying out of pocket.
- You want to use the extra cash to buy mortgage points.
- You want to combine your primary mortgage and a second mortgage, like a home equity loan used to buy the property, into one lower-interest mortgage.
No-closing-cost refinance
What it is
A no-closing-cost refinance lets you either roll closing costs into the loan or accept a higher interest rate in lieu of you paying closing costs upfront.
Best for
- Minimizing upfront costs and preserving cash for other needs
- Borrowers with limited cash reserves
- Homeowners who plan to sell or refinance again in the near term
Examples
- You refinance and still secure a lower rate than your existing mortgage, even with closing costs rolled into the loan.
- You expect to refinance or move within a few years. After doing the math, you determine the savings you get by avoiding upfront costs outweighs paying the higher rate.
- You have the cash, but prefer to keep it on hand for other priorities.
Streamline refinance
What it is
A streamline refinance is a simplified refinancing option for borrowers with an existing FHA, VA or USDA loan. Streamline programs are designed to reduce paperwork and speed up the process, often requiring limited (or no) income or credit verification and, in many cases, no home appraisal or inspection. That said, individual lenders may set their own standards.
Best for
- Existing FHA, VA or USDA loan borrowers who want to improve loan terms and rates with less hassle
- Lowering monthly mortgage payments
- Switching between an adjustable-rate and fixed-rate FHA, VA or USDA loan
Examples
- You have an FHA loan of $250,000 at 7% and want to lower your rate.
- You have a 3/1 ARM VA loan entering the adjustment period within the next year and you want to use an Interest Rate Reduction Refinance Loan (IRRRL) to switch to a fixed-rate VA mortgage.
- You have an eligible USDA loan and want to refinance to remove a co-borrower from your mortgage.
Reverse mortgage refinance
What it is
A reverse mortgage is designed for homeowners 62 and older who want to convert their home equity to cash, often to supplement income or remain in their home. The most common type is the home equity conversion mortgage (HECM), which is backed by the FHA.
Unlike a traditional mortgage, reverse mortgage payments flow from lender to borrower. Over time, the loan balance increases as fees and interest accrue, while home equity declines. The loan is typically repaid when the homeowner sells the home or passes away.
Did you know...
Lenders often require qualified homeowners to have at least 50% equity in the property to be eligible for a reverse mortgage refinance. Best for
- Taking advantage of increased home value to access more equity
- Aligning with changes in personal circumstances
- Switching to a more favorable loan product to lower interest rates
Examples
- Your home value is higher than it was when you took out the original mortgage and you want to increase your supplemental retirement income.
- Your spouse recently turned 62 and can now be added to the loan.
- You want to switch from an HECM loan to a proprietary reverse mortgage with higher loan limits.
How to choose the right refinance
If you're sure you want to move forward with a home loan refinance, keep in mind that there isn’t a single type of refinance that fits everyone. The right option will depend on your priorities and where you stand financially. Asking yourself a few key questions can help you find the best fit.
1. What’s your main goal?
Basically, what are you trying to achieve with a refinance? Ask yourself:
- Do you want the immediate benefit of lowering your monthly payment, freeing up cash for other expenses?
- Is saving on interest a top priority?
- Do you want to switch from an ARM to a fixed-rate loan for stability and predictability?
- Do you want to tap home equity for a major renovation project?
2. What’s your financial situation?
Review your debt, credit and income before refinancing. If you have bad credit, you’ll want to optimize your credit score before you shop lenders. Stronger credit can help you secure better refinance rates.
Check your debt-to-income (DTI) ratio, too. While some lenders may allow a DTI ratio of 50% (meaning you need half of your gross income to pay monthly debts) most lenders prefer 43% or lower. Lenders also want to see that you earn a stable income.
🤓 Nerdy Tip
Make sure to factor in loan affordability as well. Refinancing typically comes with closing costs, and a cash-out refinance increases your loan balance, which can put you at greater financial risk. 3. How much home equity do you have?
Most lenders prefer at least 20% home equity for a refinance, though some allow as little as 3%. Certain government-assisted programs, such as an FHA streamline refinance, may require no equity at all. Keep in mind that having less than 20% equity with a conventional loan isn’t ideal as you’ll be required to pay mortgage insurance, which increases your monthly costs.
4. Can you afford the closing costs?
Refinancing comes with many of the same expenses as your original mortgage, including closing costs — typically 2% to 6% of the loan amount. A closing costs calculator can help you estimate what you’ll pay and whether it fits your budget. If paying upfront isn’t realistic, you might consider either a limited cash-out or no-closing-cost refinance.
5. How long do you plan to stay in the home?
Run the numbers to make sure the refinancing savings outweigh the closing costs. Specifically, calculate your breakeven point — how long it takes for your monthly savings to cover what you paid to refinance. For example, if closing costs are $10,000 and you’re saving $250 monthly by refinancing, you’ll need to stay in the home for 40 months to break even.
Is refinancing worth it?
Refinancing can be a powerful financial tool for substantially lowering your mortgage costs, switching your loan type or term, and tapping your equity.
However, while refinancing a mortgage can offer borrowers some plum benefits, it isn't always a guaranteed win. You need to consider things like:
- How long do you plan to stay in your home?
- Has your home value dropped?
- Where does your credit and income stand?
- Does your current mortgage have a prepayment penalty?
- Does the cost to refinance outweigh the advantages?
Make sure you run the numbers and carefully consider your financial situation and goals. Doing so can help you decide whether or not refinancing is a smart move for you.
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