Types of Refinance
Both cash-out and no cash-out loans rely on the underlying real estate property as collateral. Key differentiators for considering cash out vs. no cash-out can be the paid down balance along with accumulated home equity and the current loan-to-value. A borrower who has paid down a substantial portion of their mortgage may look to a cash-out loan refinancing because they have equity available. No cash-out refinancings do not increase the principal payoff or provide any additional funds.
A cash-out refinance is a mortgage refinancing option in which the new mortgage is for a larger amount than the existing loan amount in order to convert home equity into cash. In a cash-out refinance, a new mortgage is for more than a previous mortgage balance, and the difference is paid in cash. You usually pay a higher interest rate or more points on a cash-out refinance mortgage, compared to a rate-and-term refinance, in which your mortgage amount stays the same. Depending on your property's loan-to-value ratio, the lender will set a maximum on how much cash you can take out when refinancing.
A no cash-out refinancce refers to the refinancing of an existing mortgage for an amount equal to or less than the existing outstanding loan balance plus any additional loan settlement costs. It is done primarily to lower the interest rate charge on the loan and/or to change some of the terms of the mortgage. A no cash-out refinance replaces an existing loan with the same principal value or potentially less, but does not allocate any money for spending cash to the borrower. A no cash-out refinance is a rate and term refinance because it focuses primarily on adjusting a borrower’s interest and terms without advancing new money. A no cash-out refinance is the opposite of a cash-out refinance, which does advance new money to the borrower. A no cash-out refinanced loan is a common type of loan used in standard mortgage refinancing deals. It focuses on improving the interest rate the borrower is charged on the loan in order to facilitate cost savings. It may also shorten or lengthen the duration of the loan to better serve the borrower.