DEFINITION of 'No Cash-Out Refinance'
The refinancing of an existing mortgage for an amount equal to or less than the existing outstanding loan balance plus an additional loan settlement cost. It is done primarily to lower the interest rate charge on the loan and/or to change the term of the mortgage.
A no cash-out refinance is also known as a 'rate and term refinance'.
BREAKING DOWN 'No Cash-Out Refinance'
Most borrowers do not realize that refinancing an existing mortgage into a new mortgage with a lower interest rate might actually mean more interest will be paid over the life of the mortgage. This is especially true if the new mortgage has a term longer than what is left on the existing mortgage, but it is dependent upon the amount by which the interest rate is lowered, and any additional outstanding years on the new loan over the old loan.
Also, most refinancing transactions involve additional direct costs, which most borrowers roll into the balance of the new mortgage, making you pay even more. The bottom line is that there is more to be considered in refinancing a mortgage than simply lowering your monthly payment by a few dollars.