Everything You Need to Know About a No Cash-Out Refinance
A no cash-out refinance, also known as a rate-and-term refinance, is a popular option for homeowners looking to improve their mortgage terms without tapping into their home equity. This refinancing strategy can help borrowers secure better interest rates, adjust their loan terms, or switch to a different type of mortgage product.
As we delve into the details of no cash-out refinances, we’ll explore how they work, who can benefit from them, and what to consider before pursuing this option.
What is a No Cash-Out Refinance?
A no cash-out refinance involves replacing an existing mortgage with a new loan that has the same or a lower principal balance. The primary goal of a refinance without cash-out is to obtain more favorable loan terms, such as a lower interest rate or a different loan duration, rather than accessing home equity. This strategy to refinance without cash-out can be an effective way to reduce monthly mortgage payments, potentially saving thousands of dollars over the life of the loan. A no cash-out refinance is also sometimes called a “rate-and-term refinance” which out simply, changes the terms of your old mortgage to help you save money.
Unlike a cash-out refinance, where borrowers can access their home equity and receive a lump sum of cash, a no cash-out refinance focuses solely on modifying the terms of the existing mortgage. This approach can be particularly beneficial for homeowners who are satisfied with their current equity position but want to take advantage of more favorable market conditions or improve their overall financial situation. A rate-and-term refinance or no cash-out refinance is likely what comes to mind when you hear “refinance.” It involves replacing your original mortgage with a new one that offers improved terms.
How Does a No Cash-Out Refinance Work?
- The borrower applies for a new mortgage with better terms than their current loan.
- The new loan amount is equal to or less than the existing mortgage balance, plus closing costs.
- The new loan pays off the existing mortgage in full.
- The borrower begins making payments on the new loan with the improved terms.
Who are No Cash-Out Refinances For?
No cash-out refinances, also known as rate-and-term refinances as mentioned previously, are a popular option for homeowners looking to improve their mortgage terms without withdrawing equity from their homes. This type of refinance can be beneficial for a variety of homeowners in different financial situations. Let’s explore who might find a no cash-out refinance particularly advantageous:
- Borrowers who currently have a mortgage with unfavorable terms (high interest rate, long term, private mortgage insurance (PMI)
- Individuals who want to switch from an adjustable rate mortgage (ARM) to a fixed rate mortgage (FRM)
- Homeowners who want to change lenders for better terms
- Individuals who don’t want to tap into their home equity
- Borrowers who want to change their terms or rate to save more per month
- Borrowers worried to take on more debt
- People with limited home equity
Why Should I Get a No Cash-Out Refinance?
Understanding the potential benefits of a no cash-out refinance is crucial in determining whether this financial move aligns with your goals. While the specific advantages can vary depending on your unique situation, there are several common reasons why homeowners opt for this type of refinance. Most people use these refinances to reduce their interest rate, but here are some other key benefits to consider:
- Potentially lower your monthly mortgage payment
- Reduce the overall interest paid over the life of the loan
- Stabilize your mortgage payments by switching from an ARM to a fixed-rate loan
- Eliminate PMI if you’ve built sufficient equity
- Improve your debt-to-income ratio by lowering monthly payments
- More monthly financial flexibility
- If you are a real estate investor, getting a no cash-out refinance can allow you improved cash flow to purchase another investment property. This means increased purchasing power and opportunities to expand your portfolio to grow ROI. Lower rates translate directly into reduced monthly payments, which enhances cash flow for investors.
No Cash-Out Refinance vs Cash Out Refinance
- Loan Amount: No cash-out loan amount can stay the same or decrease; the focus is on improving loan terms. With a cash-out refinance, the loan amount increases because the borrower receives cash from their equity.
- Interest Rates: No cash-out interest rates and fees are generally lower, while cash-out rates are usually higher with stricter qualification requirements.
- Home Equity: No cash-out refinancing does not impact home equity (besides closing costs); cash-out refinancing reduces home equity.
No Cash-Out Refinance Considerations
- Closing costs and fees (normally between 2-5% of the loan amount) which can vary by lender
- New loan terms (length of loan, fixed vs adjustable rate)
- Current market interest rates compared to your existing rate
- Break-even point (how long it will take to recoup refinance costs)
- Potential impact on your credit score
No Cash-Out Refinance Borrower Requirements
At Defy Mortgage, our no cash-out refinance borrower requirements depend on the loan option. We offer no cash-out refinance options for multiple loan types, including but not limited to:
- DSCR loans for real estate investors (including STRs)
- Bank statement loans for self-employed borrowers
- P&L(Profit and Loss Statement) loans for business-owners
- VA loans for veterans and spouses of veterans
Regardless, the following factors will likely be relevant in any situation:
- Credit Score
- DTI (Debt-To-Income) Ratio
- Home Equity
- Plus up-to-date mortgage payments and stable income and employment history
Note that there are also state requirements and residence types (whether it be a primary or investment property) which can change requirements for a no cash-out refinance.
Pros and Cons of No Cash-Out Refinance
Pros of a Refinance Without Cash-Out:
- Lower Monthly Payment: A refinance without cash-out can reduce your monthly mortgage payment by securing a lower interest rate or extending the loan term.
- Change Loan Details (PMI): If you’ve built sufficient equity, you may be able to eliminate private mortgage insurance with a refinance without cash-out, further reducing your monthly expenses.
- Change Rate and Term: A no cash-out refinance allows you to switch from an adjustable-rate to a fixed-rate mortgage or adjust your loan term to better suit your financial goals.
- Change Lender: A no cash-out refinance gives you the opportunity to switch to a lender that offers better service, terms, or overall experience.
Cons of a Refinance Without Cash-Out:
- No Money Advanced: Unlike a cash-out refinance, you won’t receive any funds from your home equity with a no cash-out refinance, which may necessitate a separate HELOC if you need cash for other purposes.
- May Not Save Cash: If you extend your loan term with a no cash-out refinance, you may pay more in total interest over the life of the loan, even with a lower interest rate.
No Cash-Out Refinance Lenders
1. Defy Mortgage
Defy Mortgage is bringing some bold, innovative energy to the mortgage game for non-traditional borrowers. Their experienced team specializes in helping real estate investors build their empire and establish their legacy with tailored loan solutions customized to meet each investor’s unique needs. They break down barriers for both buying and refinancing, making the process smoother and more secure.
That cookie-cutter, one-size-fits-all approach? Not their style. Defy knows that access to the right mortgage can make or break a project. They’ve seen firsthand that the banks are rigid – many of Defy’s employees worked there for years. It’s why Defy was started – they are driven by a passion to challenge the status quo and create a new era of lending that puts the power in the hands of borrowers. Talk about setting new standards in the industry.
Defy’s CEO, Todd Orlando, is an experienced banker who isn’t afraid of defying the traditional in the financial services space. Recognizing that the number of self-employed individuals is at an all-time high, Defy offers 75+ creative loan programs to help non-traditional borrowers achieve their goals – and that includes DSCR, fix & flip loans, construction loans and more. And the biggest pro of all? They close fast and make it easy.
2. Rocket Mortgage
Rocket Mortgage, formerly known as Quicken Loans, is one of the largest mortgage lenders in the United States. They offer a streamlined online application process for no cash-out refinances, making it easy for borrowers to explore their options and apply from the comfort of their homes. Rocket Mortgage is known for its user-friendly interface and quick closing times, which can be as short as 15 days in some cases.
Rocket Mortgage provides competitive rates and a variety of loan terms, allowing borrowers to customize their refinance without cash-out to best suit their financial needs. They also offer excellent customer service, with loan experts available to guide borrowers through the refinance process and answer any questions that may arise.
3. Wells Fargo
Wells Fargo is a well-established bank that offers a wide range of mortgage products, including refinance without cash-out. They provide options for both conventional and government-backed loans, giving borrowers flexibility in choosing the best no cash-out refinance solution for their situation. Wells Fargo’s extensive network of branches can be beneficial for those who prefer in-person interactions during the refinance without cash-out process.
The bank offers competitive rates and often provides special promotions or discounts for existing customers. Wells Fargo also has a robust online platform that allows borrowers to track their application status and upload necessary documents, streamlining the refinance without cash-out process.
4. Better.com
Better.com is an online mortgage lender that has gained popularity for its technology-driven approach to home loans and refinancing. They offer a fully digital application process for no cash-out refinances, with the potential for same-day pre-approval and competitive rates. Better.com doesn’t charge lender fees or commission, which can result in lower closing costs for borrowers doing a refinance without cash-out.
The company prides itself on transparency and provides a clear breakdown of costs associated with the refinance. Better.com also offers a “Better Price Guarantee,” promising to match any valid competitor’s offer and credit you $100 if they can’t beat it.
5. Bank of America
Bank of America is another major bank that offers no cash-out refinance options to homeowners. They provide a range of conventional and government-backed refinance with no cash-out products, catering to various borrower needs. Bank of America offers both digital and in-person application options, allowing customers to choose their preferred method of interaction.
The bank often provides special offers or discounts to existing customers, which can include reduced origination fees or relationship pricing benefits. Bank of America also offers a digital tool called Home Loan Navigator, which allows borrowers to track their refinance without cash-out application, upload documents, and communicate with their loan officer throughout the process.
Refinancing Without Cash-Out FAQs:
- What does it mean to refinance without cash-out?
To refinance without cash-out means replacing your existing mortgage with a new loan of the same or lower amount, typically to obtain better terms or a lower interest rate.
- How long do I have to wait for my home loan to mature before I can refinance without cash-out?
Most lenders require a minimum of six months from your original mortgage date, but waiting times can vary depending on the lender and loan type.
- How do I refinance without cash-out?
To refinance without cash-out, apply with a lender, provide necessary documentation, go through underwriting, and close on the new loan, which will pay off your existing mortgage.
- How often can I refinance without cash-out?
There’s typically no limit on how often you can refinance, but some lenders may have waiting periods between refinances, usually around six months.
- What are the pros and cons of a home loan refinance without cash-out?
Pros include potentially lower monthly payments and better loan terms, while cons may include closing costs and the possibility of paying more interest over an extended loan term.
- How much equity do I need to do a home loan refinance without cash-out?
Most lenders require at least 20% equity to refinance without cash-out, although some government-backed programs may allow for less.
- Can I tap into my home equity without refinancing?
Yes, alternatives to access home equity without refinancing include home equity loans, home equity lines of credit (HELOCs), and reverse mortgages for eligible seniors.
- Who can help me refinance a home loan without cash-out?
Banks, credit unions, online lenders, and mortgage brokers can all assist with no cash-out refinances, helping you compare options and navigate the application process.
- Can Defy Mortgage help me refinance without cash-out?
Yes! Defy Mortgage is eager to assist you with a refinance without cash-out.
