What is a Rate and Term refinance and what is the goal?

In a Rate and Term refinance, your goal is to get a lower mortgage rate, change the “term” (duration) of your loan, or both. Each of those will reduce your monthly payments, providing you don’t refinance to a much shorter term. Any refinance means replacing your existing mortgage with a new one. With a rate–and–term refi, your new loan amount will be the same as your existing mortgage balance.

What is a Cash-out refinance and what are the benefits?

A cash–out refinance also replaces your existing mortgage loan with a new one. But, unlike a no–cash–out refi, your new loan balance will be bigger than what you currently owe. That ‘extra’ loan amount is returned to you as cash–back at closing. What you’re doing is using home equity as collateral to secure your cash–out loan. And that allows you to borrow money at a low interest rate. This can be a much more affordable way to get a large sum of cash than using, say, credit cards or personal loans.

How do I choose between a Rate and Term and Cash-out refinance option?

As a general rule of thumb, it makes sense to do a cash–out refinance if you’ll use the cash for a smart, long–term investment with a good financial return. And you should only use one if you need a large sum of cash because the closing costs involved will likely outweigh any small sum needed.

In addition, cash–out refinancing is only a good idea when taking out a new loan won’t harm you financially. If refinancing would cost you a lot more in the long run by extending your loan term or raising your interest rate, a cash–out refinance might not be the best idea.

If a cash–out refinance isn’t the right fit, don’t worry. There are likely other ways to get the funds you need. Make sure to contact us with any questions!

Oyster House Boston Massachusetts

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