9 Types Of Refinance Options To Know: A Guide

Your mortgage payment may be the most important bill you pay each month, but what happens when you want to pay off your mortgage sooner or you want to lower your monthly payment?

Luckily, you don't have to stay with the same payment forever – a refinance can give you an opportunity for a change. When you refinance, your lender swaps out your current mortgage and gives you a new one with different terms.  

There are many different way to refinance, but which one fits you? Let's walk through the types of refinance loans you can use to your advantage.

An Overview Of Mortgage Refinance Options

Let's look at a quick overview of the different types of refinance mortgages and the purpose of each type.

9 Different Types Of Refinance Loans

Let's go into more detail about the types of mortgage refinance above, and walk through more about mortgage refinance requirements.

1. Rate-And-Term Refinance

A rate-and-term refinance is a type of refinance that allows you to change the loan term, interest rate or both by replacing your existing loan with a new loan. It's a great loan type for borrowers who want to swap their existing interest rate for a lower interest rate or lower their monthly payment.

Your lender may agree to modify the length of your term (such as moving from a 30-year mortgage to a 15-year mortgage) or changing the type of loan you have. Changing your loan type might involve switching to a fixed-rate mortgage from an adjustable-rate mortgage (ARM).

You'll have to have the right credit score to qualify (typically a 620 for a conventional loan and lower credit requirements for government-backed loans). You'll also have to qualify with your lender's recommendation for a debt-to-income (DTI) ratio, which is the percentage of your monthly income that goes toward your debt. Aim for a DTI of below 50%.

2. Cash-Out Refinance

A cash-out refinance gives you the opportunity to refinance by borrowing against your home equity, meaning you receive a new mortgage larger than your current mortgage balance. You receive the difference in cash between the two loans after your lender pays off the original mortgage.

You can withdraw about 80% of your home's equity in a cash-out refinance, and may need at least 20% of equity in your home to qualify. For example, if you have $150,000 in home equity, you could potentially withdraw around $120,000.

To qualify for a cash-out refinance, you must have a minimum credit score of 580 (in the case of VA and FHA loans) or 620 (in the case of a conventional loan). You'll want to check your debt-to-income ratio (DTI) as well, which is the percentage of your debts divided by your income. Loan-to-value ratio (LTV) shows the loan amount divided by the total loan amount by the appraised value, converted to a percentage.

3. Cash-In Refinance

A cash-in refinance is a type of refinancing where a homeowner makes a lump-sum payment on their home loan, which means they replace their current home loan with one with a smaller principal balance.

A cash-in refinance can help you build home equity faster, make qualifying for a mortgage refinance easier and lower your loan-to-value ratio (the relationship between your loan and home value). It can also help you lock in a lower monthly payment, allows you to switch to a different loan type and can help you get rid of private mortgage insurance (PMI).

You can get rid of PMI once you have 20% equity in your home, and getting cash-in refinance can achieve that.

4. Streamline Refinance

A Streamline refinance for government-backed mortgages, such as a Federal Housing Administration (FHA), Department of Veterans Affairs (VA) or a U.S. Department of Agriculture (USDA) loan, can lower your interest rate and reduce your monthly payments. It'll also be faster than a regular refinance.

For example, an FHA Streamline can change your loan type by switching from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage. The mortgage must already be insured by the FHA and you must not be delinquent on your payments. The refinance must also result in a net tangible benefit, meaning that it must benefit you, as the homeowner.

Check with your lender for the requirements for your particular loan type.

5. Reverse Mortgage Refinance

A reverse mortgage involves paying off your current mortgage. You'll receive the rest of the proceeds in a lump sum, in a line of credit or through monthly payments, which come from your lender.

To qualify for a reverse mortgage, you must be at least 62 years old and live in your home as its primary residence. You must own a substantial amount of equity in your home – at least 50% of the home's equity. Your home must also meet the FHA safety and livability requirements. You must also meet with a HUD-approved counselor to complete a required counseling session with the home equity conversion mortgage (HECM).

In addition, you must go through a financial assessment that proves you can afford the financial obligations, including property taxes, flood insurance and homeowners insurance.

6. Jumbo Loan Refinance

A jumbo loan refinance refers to refinancing a jumbo loan, a nonconforming loan not backed by the government. The baseline conforming loan limit is $766,550 for 2024 in most parts of the United States.

A jumbo loan refinance replaces your original jumbo loan with a new one. However, you could refinance into a conforming conventional loan if your loan amount falls within the conforming loan limits. You may not have to refinance with a new jumbo loan if your loan amount falls below the limit.

Lenders want to ensure you have the right credit score (typically a 720 score), DTI ratio (equal to no more than 43% of your gross monthly income), LTV ratio (no more than 80%) and cash reserves. Check with your lender about their requirements.

7. No-Closing-Cost Refinance

A no-closing-cost refinance is a refinancing option that means you don't have to pay closing costs – but note that it's not free. No-closing-cost refinances don't get rid of your expenses; they move the closing costs into your principal or exchange them for a higher interest rate.

Note that homeowners with a no-closing-cost mortgage can end up paying more over the life of the loan. Fees, such as loan origination, appraisal, title and funding fees, might get rolled into the loan amount.

A lender will look at your personal finances, credit score and other factors to determine whether you qualify for this type of refinance.

8. No-Appraisal Refinance

A no-appraisal refinance is a refinance that doesn't require an appraisal. Typically, a licensed appraiser must determine the fair market value of a home to help you determine how much you can borrow. Lenders request refinance appraisals because they want to ensure the homeowners don't borrow more than the home is worth. Appraisers examine the condition of the home, recent improvements, recently sold homes and estimates of the home's value compared to other homes in the area.

You may be able to get an appraisal waiver for conventional, FHA Streamline, USDA Streamline and VA Streamline refinances. Check out the requirements for each:

• Conventional refinance: Strong credit score, owning a one-unit property and other potential lender-specific qualifications.
• FHA Streamline refinance: A total of 210 days between your previous mortgage closing and new application, 6 months between the time of your first mortgage payment due and the closing date of your refinance, at least 6 payments on your current mortgage loan, no late payments and a net tangible benefit.
• USDA Streamline refinance: Made-on-time payments, have an existing USDA loan for at least 12 months, meet the USDA's DTI requirements and refinance your rate or term.
• VA Streamline refinance: Live in the home, only change your interest rate and/or term, make at least 6 consecutive on-time payments and have let 270 days pass between the closing date and the refinance application.

9. Short Refinance

A short refinance replaces your existing mortgage with a new mortgage with a lower balance. You can only do a short refinance if your loan servicer will write off a portion of what you owe.

Typically, you can only go this direction if you're underwater on your mortgage and can't refinance or sell your home, and it can help you avoid foreclosure or a short sale. Note that a short refinance may hurt your credit score and the IRS may also tax you for it.

FAQs: Mortgage Refinance

Take a look at our frequently asked questions about mortgage refinances.

How do I choose the right type of refinance?

There's not a “one size fits all” type of refinance for each individual person. After you decide to refinance, do your homework so you know the right refinance method for you. Your options for refinancing may depend on a wide variety of factors, including your financial situation and your lender's options.

How much does it cost to refinance?

What's the cost to refinance a mortgage? A few refinancing closing costs include an application fee, appraisal fee, attorney fees, title search and insurance and origination fees. Expect to pay between 3% – 6% of your loan balance in closing costs.

Does a mortgage refinance impact my credit score?

A mortgage refinance will hurt your score a bit initially due to your lender's credit check. Your score will dip a few points but will likely bounce back within a few months.

It's important to understand the break-even point, which helps you calculate how long you need to live in your home for your refinance to make financial sense.

How many times can I refinance?

You can refinance your home as many times as it makes sense. However, you must meet the lender's refinance requirements to refinance every time. Again, ensure that it makes financial sense to refinance for your situation.

The Bottom Line

Does a lender swapping out your current mortgage and giving you a new one with different terms appeal to you?

You can benefit financially from a refinance because you might reduce the amount you pay over your loan term. You can also make your monthly payments smaller if you're struggling to pay your mortgage, though note that doing so often increases your loan term, causing you to pay more over the number of years you have your loan.

Ready to refinance your home loan? Start an application today and discover your refinancing options.