Are you looking to extract some of the equity from your home? Or do you want to exchange your current loan for one with better terms? In either case, you may be considering a cash-out refinance or a rate-and-term refinance. Both options can help you save money in the long run, but it's important to understand the differences between them. A cash-out refinance involves taking out a new loan that is larger than your current loan balance. This allows you to receive cash at closing in addition to the new loan. However, cash-out loans generally come with additional fees, points, or a higher interest rate, as they carry greater risk for the lender.
On the other hand, a rate-and-term refinance involves exchanging your current loan for one with better terms. This type of refinance typically has lower interest rates than cash-out refinances. It's important to compare rates from three to five lenders before making a decision. LendingTree's list of the best mortgage refinance companies includes several lenders that offer cash-out refinances. Taking the time to shop around can save you thousands of dollars in the long run.