Types of Refinance: Which One Fits Your Goal?

"Refinance" is one word for several different loans. If you ask three lenders about it you may hear "rate-and-term," "cash-out," "streamline" and "IRRRL" and wonder whether they're talking about the same thing. They aren't. This guide explains the main types of refinance in plain English, what each is designed to do, and who each one tends to fit. I don't quote rates or fee percentages here because they change, but I'll tell you what to ask.

If you're still deciding whether to refinance at all, start with my quote-comparison checklist or the breakeven math. Come back here once you know which kind you need.

Every refinance replaces your current mortgage with a new one. What separates the types is mostly what happens to the money and which program the loan falls under. Fannie Mae's Selling Guide, which sets the rules for many conventional loans, splits them into two groups: limited cash-out and cash-out.

What is the difference between a rate-and-term and a cash-out refinance?

A rate-and-term refinance (Fannie Mae calls it limited cash-out) mainly changes your interest rate or term or pays off your existing loan. A cash-out refinance takes out equity you can use for any purpose.

Can I do a streamline refinance on a conventional loan?

HUD's FHA Streamline is for loans that are already FHA insured, and the VA IRRRL is for existing VA loans. For conventional loans, ask your lender which options apply to yours.

Does a VA IRRRL require me to live in the home?

VA says you must certify that you currently live in the home or used to live in it. Check VA's page or ask me for the complete requirements.

Are there special rules for cash-out refinances in Texas?

Yes. The state's notice says the new loan plus all other liens can't exceed 80 percent of the home's fair market value, and there is a 12-day waiting period, along with other protections.

Which type of refinance is right for me?

It depends on your goal and loan type, so I can't name one for everyone. Start with what you want the refinance to do and the loan you have now.