Types of mortgage refinance: Which option is right for you?

Refinancing your home is a major financial milestone, much like buying it was.¹ It’s an opportunity to reset your financial picture, whether that means reducing your monthly payment, paying off your loan sooner, or tapping into your home’s equity to fund a renovation or pay off high-interest debts.

Navigating the refinancing landscape can feel overwhelming at first. Understanding the nuances of each loan type – from standard rate-and-term changes to government-backed streamline programs – is the first step toward securing the best loan for your specific needs. We’ll break down how refinancing works, your home refinance options, and help you identify the right strategy for your financial future.

Home loan refinancing options: At a glance

How much does it cost to refinance?

While refinancing can save you money in the long run, it isn’t free. Just like when you bought your home, there are costs involved in originating a new loan. Generally, you can expect closing costs to run between 3% – 6% of the loan amount.

Here are a few refinance fees you should prepare for:

• Closing costs: This is the umbrella term for various settlement costs we’ll discuss in the remainder of this list.
• Title insurance: You’ll be required to get a new lender’s title insurance policy to protect the lender’s interest in case something is missed in the title search. If you have an existing owner’s title insurance policy, it remains effective as long as you own the home.
• Recording fees: When you get a new mortgage, the lien is recorded with the county.
• Appraisal fees: Lenders typically require a new appraisal to verify the home's current market value.
• Inspection fees: Depending on the loan type and property condition, inspections (like pest or structural) may be required.
• FHA mortgage insurance premium (MIP): An FHA loan requires you to pay an up-front MIP equal to 1.75% of your loan amount.
• VA funding fees: If you are getting a VA loan, a VA funding fee is usually required, though the amount varies based on whether it’s your first use of the benefit.
• USDA guarantee fees: USDA loans carry an upfront guarantee fee and an annual fee. Rocket Mortgage doesn’t offer USDA loans at this time.

You may want to get Loan Estimates from different lenders to compare terms. Even a small difference in fees or interest rates can change your break-even point – the time it takes for your monthly savings to outweigh the up-front cost of the refinance.

It's also a good idea to check your credit report a few months before you plan to apply to make sure you meet refinance eligibility requirements. This gives you time to correct potential mistakes, ensure on-time payments, and reduce your credit utilization to raise your score and qualify for better rates and terms.

9 types of refinances

There isn't a one-size-fits-all solution for homeowners looking for the best home refinance mortgage. Lenders offer various refinance options to cater to different financial profiles, from those with perfect credit and significant equity to those recovering from financial hiccups.

Here are 9 common home loans to consider when refinancing.

1. Rate-and-term refinance

A rate-and-term refinance adjusts the interest rate, allows for a mortgage term change, or both, without changing the loan balance.

How it works

You take out a new mortgage to pay off your existing one. The goal is usually to secure a lower interest rate for a monthly payment reduction or to shorten the term (for example, from 30 years to 15 years) to save on total interest paid over the life of the loan.

Common qualifications

• There’s no minimum credit score for conventional or VA loans, although lenders may set their own standards. They look at several credit factors. FHA requires a credit score of 500 if you have 10% equity. Rocket Mortgage requires a score of 580, but you only need 3.5% equity.⁶
• Your DTI should typically be below 45%.
• At least 3% – 5% equity in the home is usually required.

Who it's best for

This option is ideal for homeowners who want to reduce their monthly housing costs or build equity faster by taking a shorter-term loan. It’s a popular choice when interest rates have dropped since you purchased your home.

2. Cash-out refinance

A cash-out refinance allows you to borrow your home equity.

How it works

You refinance your mortgage for more than you currently owe using your home's current fair market value. The new loan pays off your existing mortgage, and the difference is paid to you in cash at closing. You can use this money for virtually any purpose, such as debt consolidation, home improvements, or investment.

Because your loan balance increases, your monthly payment may increase unless you secure a significantly lower interest rate.

Common qualifications

• Lenders will typically require higher credit qualifications to take cash out. Rocket Mortgage will allow you to do an FHA loan for the purpose of debt consolidation when your score is 580 or higher.
• You typically need significant equity and must usually retain at least 20% equity in the home after the refinance. VA loans allow you to convert all your existing equity into cash.

Who it's best for

Homeowners with significant equity who need funds for major expenses and want to borrow at a lower interest rate than personal loans or credit cards offer may want to consider this option.

3. Cash-in refinance

A cash-in refinance is the opposite of a cash-out. Instead of taking money out, you bring funds to the closing table to pay down your principal balance.

How it works

By paying down a portion of the mortgage balance up front, you reduce your loan-to-value ratio (LTV). This can help you qualify for a lower interest rate, eliminate private mortgage insurance (PMI), or get your mortgage "above water" if you owe more than the home is worth.

Common qualifications

• A lump sum of cash is available for the transaction
• Meeting standard credit and income requirements for the new loan

Who it's best for

Homeowners who want to secure a lower interest rate but have a high LTV, or those looking to eliminate mortgage insurance costs by raising their equity to 20%, may view this as ideal.

4. FHA Streamline refinance

The FHA Streamline refinance is an exclusive benefit for homeowners who already have a mortgage insured by the Federal Housing Administration (FHA).

How it works

This program is designed to reduce the refinance timeframe for paperwork and processing. It typically requires less documentation than a standard refinance. In many cases, no new appraisal is required, and income verification may be waived. It’s strictly for reducing your rate or moving from an adjustable-rate to a fixed-rate mortgage. No cash-out is allowed.

Common qualifications

• You must currently have an FHA loan.
• The mortgage must be current with no late payments in the last 6 – 12 months.
• There must be a net tangible benefit, meaning the refinance will save you money.

Who it's best for

Current FHA borrowers who want to lower their rates quickly and easily, with minimal underwriting hurdles, could benefit from this.

5. VA Streamline refinance

Also known as an Interest Rate Reduction Refinance Loan (IRRRL), the VA Streamline refinance is for homeowners with a VA loan.

How it works

Like the FHA Streamline, this program simplifies refinancing an existing VA loan into a new VA loan. It usually requires no appraisal and less documentation regarding income or credit.

Common qualifications

• You must have an existing VA loan.
• You need to certify that you currently or previously occupied the home.
• You must qualify for a lower interest rate unless you're moving from an ARM to a fixed-rate loan.

Who it's best for

Eligible VA loan clients who want to reduce their monthly payments or stabilize their rate without a lengthy underwriting process should consider this option.

6. USDA Streamline refinance

The USDA Streamline refinance helps borrowers with loans backed by the U.S. Department of Agriculture (USDA) reduce their interest rates. Rocket Mortgage currently does not offer USDA loans.

How it works

This program is available to rural homeowners with a current USDA loan. There are two versions: Standard Streamline and Streamline-Assist. The Streamline-Assist is popular because it generally does not require a credit check, appraisal, or DTI calculation.

Common qualifications

• You must have an existing USDA Guaranteed Housing Loan.
• The home must still meet USDA eligibility.
• You must meet a tangible benefit requirement ($50 net reduction in monthly payment for Streamline-Assist).

Who it's best for

Rural homeowners with USDA loans looking to reduce their monthly housing expenses with minimal friction should check this out.

7. Reverse mortgage

A reverse mortgage, typically a home equity conversion mortgage (HECM), allows older homeowners to convert equity into cash without monthly mortgage payments.

How it works

Unlike a traditional mortgage, where you pay the lender, a reverse mortgage has the lender pay you – either in a lump sum, a series of monthly payments, a line of credit, or some combination of these. You make no monthly principal and interest payments. The loan is repaid when you move out, sell the home, or die. However, you’re still responsible for paying property taxes, homeowners insurance premiums, and home maintenance costs.

Common qualifications

• Must be age 62 or older
• Must own the home outright or have a low mortgage balance
• Must live in the home as a primary residence

Who it's best for

Retirees with significant home equity who need to supplement their retirement income or cover health care costs and want to age in place may find this is a good option.

Rocket Mortgage does not offer reverse mortgages at this time.

8. No-closing-cost refinance

A no-closing-cost refinance sounds like a freebie, but it’s actually a restructuring of the fees.

How it works

Instead of paying closing costs up front in cash, the lender covers these costs in exchange for charging you a slightly higher interest rate. Alternatively, closing costs may be rolled into the loan principal.

Common qualifications

• Sufficient equity to roll costs into the loan
• Being able to handle the payment for the slightly higher interest rate associated with lender credits

Who it's best for

Homeowners who plan to move within a few years (before the higher interest rate negates the up-front savings) or who are illiquid but want to refinance for immediate payment relief could benefit from this.

9. Mortgage recasting

Mortgage recasting isn’t a new loan, but it achieves a similar goal to refinancing. Recasting your mortgage is an option that allows you to avoid paying closing costs.

How it works

You make a large lump-sum payment toward your principal balance. The lender then re-amortizes the balance over the remaining term of the loan. This reduces your monthly payment, but your interest rate and loan term stay the same. Because you aren’t getting a new loan, you avoid traditional closing costs.

Common qualifications

• A large lump sum of cash (Rocket Mortgage requires $10,000 minimum)
• Loan must be current
• Loan type must be eligible (FHA and VA loans don’t allow recasting)

Who it's best for

Homeowners who have come into a large sum of money (inheritance, bonus) and want lower monthly payments could do so without the hassle or cost of a full refinance.

What to consider before refinancing your mortgage

When deciding among the different types of refinancing options, there are several factors you ought to consider, including:

• The type of mortgage loan you currently have
• The type of borrower you are (for example, a veteran with a VA loan)
• The financial goals you hope to achieve by refinancing
• The amount of equity you have in your home
• Your credit score
• Your DTI
• Your LTV
• Your overall financial standing (for example, your ability to afford closing costs or pay off additional debt)

If you’re still not sure which type of refinance would best fit your needs, talk to a Home Loan Expert about what potential terms for different refinance options would look like and ask for other mortgage refinance tips.

FAQ

Refinancing can be complex. Here are answers to some of the most common questions homeowners have exploring when to refinance and how.

How often can I refinance my home?

Legally, there is no limit to how often you can refinance your home. However, lenders and mortgage investors may have "seasoning" requirements, meaning you must wait a certain period (often 6 months to 1 year) after your last mortgage closed before you can refinance again.

How do I find a reputable refinance lender?

To choose a mortgage lender, you should shop around and compare Loan Estimates from multiple companies. Look at not just the interest rate, but also the APR, origination fees, and customer service reviews to ensure you're working with a partner who supports your goals.

Can I lose my house if I refinance?

Generally, refinancing helps you keep your home by making payments more affordable, but there also are refinance risks. If you use a refinance to avoid foreclosure but still cannot make the new payments, or if you take a reverse mortgage and fail to pay property taxes, you could run the risk of losing the home.

Are there closing costs on a rate-and-term refinance?

Yes, a rate-and-term refinance typically comes with closing costs, which usually range from 3% – 6% of the loan amount. You may be able to roll these into your loan balance or take a slightly higher interest rate to have the lender cover them.

Can I sell my house after a cash-out refinance?

Yes, you can sell your home after a cash-out refinance, but you should check your loan documents for an "owner-occupancy" clause. This clause often requires you to live in the home for a set period before you can sell or rent it out.

The bottom line: Make sure refinancing works for you

With so many home refinance options available, the right choice depends entirely on your current financial situation and your long-term goals. Whether you want to lower your monthly payment with a rate-and-term refinance or fund a renovation with a cash-out, running the numbers on your break-even point is essential. Taking the time to understand these products puts you in the driver’s seat of your financial future.

Are you ready to look into your options? Start your application with Rocket Mortgage.

¹ Refinancing may increase finance charges over the life of the loan.

² The FHA Streamline program may have stricter requirements in some states. In order to qualify for the FHA Streamline program, an immediate .5% minimum reduction in interest and mortgage insurance premium is required. Some states may require an appraisal.

³ Rocket Mortgage is not acting on behalf of FHA or HUD.

⁴ The VA Streamline program may have stricter requirements in some states. In order to qualify for the VA Streamline program, you must have a VA loan. The VA Streamline is only available on primary residences. Cash-out transactions are not allowed. In order to qualify for a VA Streamline, a 0.5% minimum reduction in interest rate on the previous fixed-rate loan must occur if the new loan will be a fixed rate or a 2% minimum reduction in interest rate on previous adjustable rate mortgage loan must occur; a minimum of 6 months of consecutive mortgage payments must be paid on the current loan at the time of application. Some states may require an appraisal. Additional restrictions/conditions may apply.

⁵ Rocket Mortgage is a VA-approved lender, not endorsed or sponsored by the Dept. of Veterans Affairs or any government agency.

⁶ To qualify for this offer, you must meet all standard FHA eligibility requirements. In addition, your total mortgage payment, including taxes and insurance, cannot exceed 38% of your income, your debt-to-income (DTI) ratio cannot exceed 45%, and you must have 12 months of verifiable housing history immediately prior to your application, no late payments 30 days or greater in the last 12-months, and no derogatory marks on your credit report. Not available on jumbo loans. Asset statements may be needed, no more than 1 day of non-sufficient fund fees are allowed in the most recent 2 months prior to application. Additional restrictions/conditions may apply.

Rocket Mortgage is a trademark of Rocket Mortgage LLC or its affiliates.