Cash-Out vs Rate-and-Term: Which Should You Choose?
A rate-and-term refinance changes your rate, your term, or both, and leaves your balance about the same. A cash-out refinance does that and also increases the balance so you leave closing with money. Cash-out is priced higher and allows less borrowing against the home, so if you do not need the cash, a rate-and-term refinance is the cheaper loan.
Last reviewed
Cash-Out Refinance
Replaces your mortgage with a larger one and pays you the difference at closing.
Rate-and-Term Refinance
Replaces your mortgage to change the rate or the term without taking equity out.
Side-by-Side Comparison
| Feature | Cash-Out | Rate-and-Term |
|---|---|---|
| Loan balance | Increases by the cash taken plus costs | About the same as before, plus any financed costs |
| Cash at closing | Yes | No, beyond small incidental amounts |
| Pricing | Higher for the same borrower and home | Lower |
| How much of the home’s value you can borrow | Less | More |
| Typical purpose | Funding a project, paying off other debt, or a large expense | Lowering the rate, shortening the term, or removing mortgage insurance |
When to Choose Each Option
Choose Cash-Out If:
- You need a lump sum and want one fixed payment
- Today’s rate is near or below your current rate
- You are replacing higher-cost debt and will not run it up again
Choose Rate-and-Term If:
- Your goal is a lower rate or a shorter term
- You want to remove mortgage insurance
- You do not need cash from the home
The Bottom Line
Decide on the cash first. If you do not need it, rate-and-term is cheaper. If you do, compare a cash-out refinance against keeping your current mortgage and adding a HELOC, especially when your current rate is below the market.
The Questions Everyone Asks
More Comparisons
Ready to Compare Rates?
Mortgage pricing is opaque. Compare rate, points, and fees side by side so you can see the real cost. Ralo shows every line item so you can compare mortgage options more clearly.
Get Your Personalized Rate