Rate-and-term refinance
A rate-and-term refinance replaces your existing mortgage with a new one that has different terms — typically a different rate, a different length, or both — without taking cash out at closing.
It is commonly used to lower the rate, shorten or extend the term, or switch from an adjustable to a fixed loan.
Cash-out refinance
A cash-out refinance increases the loan balance above the existing payoff. The borrower receives the difference as funds at closing, which can be used for a defined purpose such as home improvements or debt consolidation.
Because the new loan is larger, the monthly payment, total interest, and time to pay off the home can all change. The new rate also applies to the entire balance — not just the cash-out portion.
How to compare
When considering cash-out, it can help to compare the structure with alternatives like a HELOC or home equity loan, which leave the existing mortgage intact.
- Rate-and-term changes the loan; cash-out also extracts equity.
- Cash-out applies the new rate to the whole new balance, not just the new portion.
- Compare cash-out against HELOC or home equity loan structures.
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