Cash-Out vs. Rate-and-Term Refinance
Both refinances replace your mortgage, but they solve different problems. Tania Yatooma, a Swift Home Loans mortgage specialist with more than 10 years of mortgage experience, explains how each works, when a home equity loan beats both, and how to run the break-even math before you decide.
- Free side-by-side comparison
- Rate-and-term & cash-out
- Home equity options
- No minimum FICO program
Get Your Free Refinance Comparison
Tania will compare rate-and-term, cash-out and home equity options for your loan, usually the same business day.
- Rate-and-term
- New rate or term, little cash
- Cash-out
- Up to about 80% of value
- Home equity loan
- Keeps your first mortgage
- Your mortgage specialist
- Tania Yatooma · 10+ yrs
Compare Your Current Loan With a Refinance
Enter your current loan and the refinance you're considering. Leave cash out at $0 to model a rate-and-term refinance.
- Current principal & interest
- $0
- New principal & interest
- $0
- New loan amount
- $0
- New loan-to-value
- 0%
- Break-even
- n/a
- Interest left, current loan
- $0
- Interest, new loan
- $0
Estimate only, not a loan offer. Principal and interest only; taxes and insurance don't change with a refinance.
Cash-Out vs. Rate-and-Term Refinance
Both replace your current first mortgage. The difference is what you're trying to accomplish.
| Rate-and-term refinance | Cash-out refinance | |
|---|---|---|
| Main goal | Lower the rate or payment, change the term, switch loan type | Turn home equity into cash |
| Cash to you | Little or none | New loan minus payoff and costs |
| Max loan-to-value (typical) | Conventional up to about 95–97%; FHA and VA streamlines available | Conventional and FHA about 80%; VA higher for eligible veterans |
| Pricing | Best available pricing | Often slightly higher rate or cost |
| Ownership time | No minimum for most programs | Often about 12 months of ownership or loan history |
| Common uses | Remove FHA mortgage insurance, ARM to fixed, 30 to 15 years | Renovations, debt consolidation, tuition, investments |
Typical guidelines for general information; Tania will confirm the rules for your loan and property.
Which Option Fits Your Situation?
Choose rate-and-term when…
- Today's rates are meaningfully below your current rate
- You want to drop FHA mortgage insurance by moving to conventional
- You want out of an adjustable rate before it resets
- You want to pay off the house faster with a shorter term
- You'll keep the loan past the break-even point
Choose cash-out when…
- You need a large sum and today's rate is close to or below your current rate
- You're paying off high-interest debt and want one payment
- You'd refinance anyway and want to add cash at the same time
- You have at least 20% equity to leave in the home
Already have a low rate? Consider a home equity loan or HELOC. A cash-out refinance resets your whole balance at today's rate. If your current rate is well below today's, borrowing only what you need with a second mortgage usually costs less overall. See how the three options compare on our cash-out refinance page.
Before You Refinance in Michigan
Your taxes won't reset
A refinance isn't a transfer of ownership, so it doesn't uncap your Michigan taxable value.
Watch the new term
Restarting at 30 years can lower your payment but add years of interest. Compare total interest, not just the payment.
Interest deductibility
Interest on cash taken out is generally deductible only if it's used to buy, build or substantially improve the home. Ask your tax advisor.
Low credit score?
Swift Home Loans has an eligible refinance program with no minimum FICO score. See how it works.
Refinance Questions
What is the difference between a cash-out and a rate-and-term refinance?
A rate-and-term refinance replaces your mortgage to change the rate, the term or the loan type, and you receive little or no cash. A cash-out refinance replaces your mortgage with a larger one and pays you the difference in cash. Both replace your existing first mortgage.
How much cash can I take out with a cash-out refinance?
Conventional and FHA cash-out refinances generally allow a new loan of up to 80% of your home's value. VA cash-out refinances can go higher for eligible veterans; the VA allows up to 100%, though many lenders cap it lower. Your available cash is that maximum minus your current balance and costs.
Can I get any cash back with a rate-and-term refinance?
Only a small amount. Conventional rate-and-term refinances limit cash back to a small amount, often around $2,000 or a small percentage of the loan. If you need more, it's a cash-out refinance.
Are cash-out refinance rates higher?
Usually a little. Lenders often price cash-out refinances slightly higher than rate-and-term refinances, especially at higher loan-to-value ratios and lower credit scores.
Should I do a cash-out refinance if my current rate is low?
Often not. A cash-out refinance replaces your entire mortgage at today's rate. If your current rate is well below today's rates, a home equity loan or home equity line of credit lets you borrow only what you need while keeping your low first-mortgage rate. Tania can compare both.
How do I calculate my refinance break-even point?
Divide your total refinance closing costs by your monthly savings. For example, $6,000 in costs and $200 a month in savings is a 30-month break-even. If you expect to keep the loan longer than that, the refinance generally pays for itself.
Will refinancing raise my Michigan property taxes?
No. In Michigan, a refinance isn't a transfer of ownership, so it doesn't uncap your home's taxable value.
More for Homeowners
Tania helps buyers and homeowners across Oakland County, Macomb County and Southeast Michigan. See all loan programs and service areas.
Not Sure Which Refinance Fits?
Get a free side-by-side comparison of rate-and-term, cash-out and home equity options from a mortgage specialist with 10+ years of experience.