Cash-Out vs Regular Refinance 2026: Key Differences Explained

Key Differences at a Glance

Before diving into details, here is a quick comparison of the two refinance types:

What Is a Rate-and-Term Refinance?

A rate-and-term refinance (also called a "no cash-out" refinance) replaces your existing mortgage with a new loan that changes your interest rate, loan term, or both - without extracting equity. The new loan amount covers only your existing balance plus closing costs.

Common Goals for Rate-and-Term Refinancing

• Lower your interest rate - Reduce monthly payments and total interest paid
• Shorten your loan term - Pay off your home faster (30-year to 15-year)
• Extend your loan term - Lower payments by stretching remaining balance
• Switch loan types - Convert ARM to fixed rate for stability
• Remove mortgage insurance - Eliminate PMI when equity reaches 20%
• Remove a co-borrower - Take sole ownership after divorce or separation

Rate-and-Term Refinance Example

What Is a Cash-Out Refinance?

A cash-out refinance replaces your mortgage with a larger loan, giving you the difference as cash at closing. This allows you to convert home equity into liquid funds while potentially also changing your rate or term.

For a detailed explanation of cash-out mechanics, see our Cash-Out Refinance: How It Works guide.

Common Uses for Cash-Out Refinancing

• Home improvements - Renovations that increase property value
• Debt consolidation - Pay off high-interest credit cards and loans
• Investment opportunities - Fund investment property down payments
• Major expenses - Education, medical bills, business funding
• Emergency reserves - Build cash cushion for unexpected needs

Cash-Out Refinance Example

Interest Rate Comparison: How Much More Does Cash-Out Cost?

Cash-out refinance rates carry a premium over rate-and-term refinances. This pricing difference exists because lenders view cash-out loans as higher risk - borrowers extracting equity have less skin in the game.

Typical Rate Differences

*Rates shown are illustrative examples. Actual rates vary based on market conditions and individual qualifications.

The True Cost of the Rate Difference

That 0.25-0.5% rate premium adds up over the loan term:

Qualification Requirements Compared

Rate-and-Term Refinance Requirements

• Credit score: 620+ minimum (580+ for FHA streamline)
• LTV: Up to 97% for primary residence
• DTI: Up to 50% with compensating factors
• Income documentation: Standard verification
• Seasoning: Often none required (varies by loan type)
• Cash at closing: Less than $2,000 allowed

Cash-Out Refinance Requirements

• Credit score: 620+ minimum (higher scores get better rates)
• LTV: Maximum 80% for conventional (100% VA)
• DTI: Up to 43-45% typically
• Income documentation: Full documentation required
• Seasoning: 6-12 months ownership typically required
• Cash at closing: Unlimited (up to LTV limit)

When to Choose Each Option

Choose Rate-and-Term Refinance When:

• Your primary goal is lowering your interest rate
• You want to shorten your loan term to build equity faster
• You need to remove PMI or switch from ARM to fixed
• You have limited equity (over 80% LTV)
• You do not need cash and want the lowest possible rate
• You want to close quickly (rate-and-term is faster)

Choose Cash-Out Refinance When:

• You need funds for home improvements, debt payoff, or investments
• You have substantial equity (at least 20%+ after cash-out)
• You can improve or maintain your rate while accessing cash
• Your current mortgage rate is higher than today's cash-out rates
• You want to consolidate debts into one lower payment
• You prefer a single first mortgage over adding a HELOC

Alternative: Consider a HELOC Instead

If you have a low-rate first mortgage you want to keep, a HELOC or home equity loan lets you access equity without touching your primary mortgage. Compare all options in our HELOC vs Cash-Out Refinance guide.

Hybrid Strategy: Limited Cash-Out Refinance

Some borrowers qualify for a "limited cash-out" refinance - essentially a rate-and-term refinance that allows up to $2,000 cash back at closing. This option:

• Gets rate-and-term pricing (lower rates)
• Allows small cash back for minor expenses
• Keeps higher LTV limits available
• Requires less equity than full cash-out

Frequently Asked Questions

What is the difference between cash-out and regular refinance?

A regular (rate-and-term) refinance replaces your existing mortgage with a new loan to change your rate or term without taking cash. A cash-out refinance replaces your mortgage with a larger loan, giving you the difference in cash. Cash-out refinances have higher rates (0.125-0.5% more) and stricter requirements.

Are cash-out refinance rates higher than regular refinance?

Yes. Cash-out refinance rates are typically 0.125% to 0.5% higher than rate-and-term refinance rates. This premium reflects the higher risk to lenders when borrowers extract equity. A borrower who qualifies for 6.5% on a rate-and-term refinance might see 6.75-7.0% for cash-out.

Can I switch from a cash-out to a regular refinance?

Yes. If you discover during the process that rate-and-term refinancing offers better terms, you can request your loan be restructured. However, once you close on a cash-out refinance, you would need to wait and refinance again to change terms.

What are the LTV limits for cash-out vs regular refinance?

Rate-and-term refinances allow up to 97% LTV for primary residences with conventional loans. Cash-out refinances cap at 80% LTV for conventional loans. VA loans allow 100% LTV for both rate-and-term and cash-out refinances for eligible veterans.

Is a regular refinance faster than cash-out?

Generally yes. Rate-and-term refinances often close in 21-30 days due to simpler underwriting. Cash-out refinances typically take 30-45 days because of additional verification requirements and the 3-day rescission period for primary residences.

Which refinance option has lower closing costs?

Rate-and-term refinances often have lower closing costs because loan amounts are smaller. However, both types have similar fee structures (2-5% of loan amount). Some lenders offer no-closing-cost options for rate-and-term refinances with slightly higher rates.

How much cash can I receive with a cash-out refinance?

You can typically access up to 80% of your home's value minus your current loan balance. For example, with a $1 million home and $500,000 mortgage, you could potentially borrow up to $800,000, receiving $300,000 in cash (minus closing costs). VA allows 100% LTV.

Related Resources

Learn more about your refinancing and equity options:

• Complete Home Equity Guide 2026 - Overview of all equity access strategies
• Cash-Out Refinance: How It Works - Detailed cash-out mechanics
• HELOC vs Cash-Out Refinance - Compare second lien alternatives
• Best Uses for Home Equity - Smart ways to use your equity