Rate & Term Refinance
This is the most general type of refinance and it is used to save money through a rate reduction. When rates have dropped since the last time a homeowner signed their mortgage, it is a good idea to shop around and consider a rate & term refinance. Even a 0.5% drop in rate can be well worth the time invested.
Cash Out Refinance
This type of refinance allows a homeowner to take cash out of the equity in their home. This can be done by taking back some of the money paid down on a mortgage, and increasing the mortgage balance or sometimes, if rates have dropped significantly compared to the previous mortgage, cash can be taken out of the home without actually increasing the monthly payment, because the increase in mortgage balance can be all or partially offset by the decrease in interest rates.
Debt Consolidation Refinance
This type of refinance can be used for homeowners who have significant debt at high interest rates (i.e. credit card debt) to bundle that debt with their mortgage debt, and refinance it all together into a new mortgage. The advantage is being able to convert credit card debt into mortgage debt with a much lower interest rate, and having all of that debt consolidated into one payment, instead of multiple.
Another way this type of refinance is used is for homeowners who are in mortgage arrears or are not able to make the payments on their existing mortgage. These homeowners can sometimes be rescued from a foreclosure using a private debt consolidation mortgage that offers a change in terms which are more flexible and increases their ability to make payments on time.