There are four types of refinances:
1. No cash-out refinance. With a no cash-out refinance, you take out a new loan for the same balance as your current mortgage and pay your closing costs out of pocket. It’s also called a rate-and-term refinance.
2. Limited cash-out refinance. This type of refinance allows you to roll your closing costs into a higher loan amount. However, limited cash-out refinances cap you at receiving only 2% of your loan amount or $2,000, whichever is less.
3. Cash-out refinance. You can usually tap up to 80% of the appraised value of your home with a cash-out refinance, though eligible VA homeowners can borrow up to 90% of their home’s value with a VA cash-out refinance. This type of refinance is popular for paying off high-interest-rate credit cards or making home improvements.
4. No-closing-cost refinance. A no-closing-cost refinance allows you to avoid paying any costs out of pocket by accepting a higher interest rate or loan amount, and instead asking the lender to pay the closing costs on your behalf. However, you’ll make a higher monthly payment and pay more interest over the life of the loan.