There are two types of refinance loans: rate and term and cash-out.

With a rate and term refinance, you can lower your monthly mortgage payments by reducing your interest rate. This can help you pay down your mortgage faster. If you have 20% equity in your home, you can save additional costs by eliminating mortgage insurance.

On the other hand, with a cash-out refinance, you can borrow cash from the equity you have built in your home. This loan replaces your current mortgage. You then receive the difference in cash, which you can use for other expenses. The cash you borrow can be up to 80% of the home’s value.

Many homeowners use a cash-out refinance to pay down high-interest debt or cover other immediate expenses, such as home renovations or college tuition.