Both products refinance your existing first mortgage. The difference is what you do with the new loan balance.
Rate-and-term refinance
Purpose: lower your rate, change your term, or convert an ARM to fixed — without changing the loan balance.
- LTV: up to 95% conventional (higher for VA and FHA)
- Rate: typically 0.25–0.5% lower than cash-out on the same file
- Cash to borrower: up to $2,000–$5,000 (or 2% of loan amount)
- Use case: lower monthly payment, shorten term, remove PMI, move from ARM to fixed
Cash-out refinance
Purpose: replace your existing loan with a larger one and take the difference in cash.
- LTV: up to 80% conventional (100% VA, 80% FHA)
- Rate: typically 0.25–0.5% higher than rate-and-term
- Cash to borrower: substantial — dollar amount depends on your equity and program LTV cap
- Use case: renovations, investment property down payment, debt consolidation, tuition, business capital
Decision framework
Use rate-and-term if:
- Your current rate is above market and you don't need cash
- You want to shorten your term
- You want to remove PMI without pulling equity
- You're moving from ARM to fixed
Use cash-out if:
- You need meaningful equity access AND your rate is not far below market
- The cash-out use is high-value (investment property, debt consolidation at a lower blended rate)
Consider a HELOC instead if:
- Your existing first-mortgage rate is well below market
- You want flexible/revolving access rather than a lump sum
- Preserving your low first-mortgage rate matters more than getting a fixed rate on the equity draw
See Refinance vs HELOC for that decision framework.
FAQs
What's the rate difference between rate-and-term and cash-out?
Cash-out typically prices 0.25–0.5% above rate-and-term on conventional loans, sometimes more on jumbo. VA and FHA have smaller spreads. The spread reflects lender risk-based adjustments for the higher effective LTV that cash-out represents.
Can I do a rate-and-term with a small amount of cash out?
Most programs allow up to 2% of the loan amount (capped around $2,000–$5,000) back to the borrower on a rate-and-term refi. Anything above that pushes the loan into cash-out pricing.
Do I need more equity for cash-out?
Yes. Rate-and-term conventional refis can go up to 95% LTV. Cash-out conventional caps at 80%. Cash-out simply requires more equity because you're pulling money out.
Which is faster to close?
Rate-and-term is usually a few days faster because underwriting is simpler and there are no proceeds to wire. Both typically close in 21–35 days.
Related: Rate-and-term refinance · Cash-out refinance Colorado · Cash-out refinance Florida · Refinance vs HELOC