Rate-and-Term or Cash-Out? Follow the Money
Both replace your first mortgage. The difference is whether you are changing the loan terms or also borrowing against your equity.
Quick Facts: Two Refinance Purposes
-
Change terms
Rate, term or structure.
-
Borrow cash
Cash-out adds a new obligation.
-
Retained equity
Value minus secured debt.
-
Whole-loan view
Compare total balances and costs.
Two purposes, two obligations
Start with the purpose. Do you want to change how the loan is repaid, or borrow additional money? Neither route automatically gives you a lower payment or better rate.
Rate-and-term
Generally changes rate, term or structure without substantial cash out. Permitted costs may be financed; limited cash back and classification follow program rules.
Cash-out
A new mortgage repays the existing one and releases eligible equity as borrowed cash. It creates a new balance and repayment obligation.
Follow every dollar through closing
Simplified cash-out illustration
- $370,000 New loan −
- $300,000 Existing payoff −
- $8,000 Costs paid from proceeds =
- $62,000 Illustrative net cash
Not an offer or lending limit. Actual proceeds depend on the payoff statement, liens, costs, escrows and program rules.
Where the assumed property value goes
$500,000 assumed value · $370,000 new loan
Estimated equity from the assumed value, not cash available in a bank account. This is not an eligibility or maximum-LTV rule.
