Key home refinancing facts

Rate/Term Refinance = Payoff your current mortgage with a net tangible benefit such as a better rate, lower payment, shorter term, etc.  Fannie Mae allows for you to get the lesser of 2% or $2,000 back at closing.  Freddie Mac allows the greater of $2,000 or 1% back at closing.

Cash Out Refinance = Payoff your current mortgage plus take additional cash out or consolidate a 1st and 2nd mortgage into one new mortgage.  The cash out could be used for home improvement, paying off other debt, or other such purposes.  Consolidating a home equity line of credit into the new mortgage is considered Cash-Out unless it was used for the original purchase of the home and not modified in any way since that time.  The interest rate offered on a cash-out refinance will be higher than a rate/term refinance due to lenders considering it a riskier transaction.  It will also have lower Loan To Value allowances, such as 80% of the home value. Lower loan to values will offer better pricing/rate offerings.  For example, a 75% Loan To Value will offer you significantly better terms than 80% and should be considered if this meets your needs.

Recast Option = Paydown the principal on your current loan with a one-time significant contribution and have the monthly payment adjusted accordingly.  Retain your current interest rate and term and avoid closing costs associated with a traditional refinance.  Lender-specific terms apply - typical cost averages $250.00.  

What to think about:  Consider your need, and if you need cash out, how much will you need, and how soon can you pay it off.  If it is a smaller amount, could a home equity line of credit be a better choice due to lower closing costs?  If you cannot pay it off quickly (3-5 years), then maybe it makes sense to put it into the longer-term mortgage.