Best Refinance Options for Homeowners
Overview of the main refinance options for homeowners, with plain explanations of how each one works and when it may fit.
What this article covers
When you refinance your mortgage, you replace your current home loan with a new one.
There is not just one way to refinance; different options work for different goals.
In this article we review several common refinance options so you can ask better questions before you decide.
Option 1 – Rate-and-term refinance
Goal: improve your interest rate, your term, or both.
- You keep roughly the same loan amount.
- You may move from an adjustable-rate to a fixed-rate mortgage.
- You may choose a shorter term to pay off your home faster.
This option can be useful if rates are lower than when you first took your loan, or if your credit profile has improved.
Option 2 – Cash-out refinance
Goal: turn part of your home equity into cash.
- The new loan is larger than your current balance.
- You receive the difference in cash at closing.
- You can use those funds to consolidate debt, make home improvements or cover other large expenses.
Remember that your mortgage is secured by your home. Using a cash-out refinance to pay other debts may lower your rate, but it also moves that debt into a loan that is tied to your property.
Option 3 – Shorter term refinance
Goal: pay off your mortgage sooner and reduce total interest.
- You may move from a 30-year term to a 20- or 15-year term.
- Monthly payments are usually higher, but more of each payment goes to principal.
This option fits homeowners with stable income who want to reduce long-term interest and reach a debt-free home faster.
Option 4 – Streamline or simplified refinance (for some loan types)
Some loan programs offer “streamline” refinances with less documentation if you already have that specific type of loan.
- The process can be faster and require fewer documents.
- In some cases there is no appraisal.
These programs still have costs and rules, so review the details carefully with your lender.
Questions to ask any lender
- What is the total cost of this refinance (including closing costs)?
- How long will it take for my monthly savings to recover those costs?
- Is there any prepayment penalty on the new loan?
- What happens if I sell my home or refinance again in the future?
Important note
This article is for educational purposes only. It does not replace legal, tax or financial advice.
Always review your situation with a licensed professional before making decisions about refinancing your mortgage.