Types of Refinance in California
Rate-and-term refinancing replaces your existing mortgage with a new one at better terms — a lower interest rate, shorter loan term, or switch from adjustable to fixed rate. You do not receive cash; the new loan pays off the old loan and closing costs. Minimum equity requirement is typically 5% for conventional, 3.5% for FHA, and no equity requirement for VA IRRRL. This is the most common refinance type and makes sense whenever the new rate is at least 0.5-0.75% lower than your current rate, after factoring in closing costs and your expected remaining time in the home.
Cash-out refinancing replaces your mortgage with a larger one, providing the difference as cash. Conventional cash-out requires at least 20% equity remaining after the cash-out. On a home worth $1,000,000, you can borrow up to $800,000 — if your existing mortgage balance is $500,000, you receive up to $300,000 in cash. VA cash-out allows up to 100% LTV, and FHA cash-out allows up to 80% LTV. Common uses for cash-out proceeds include home improvements (which may further increase value), debt consolidation (replacing 20% credit card debt with 6.5% mortgage debt), investment property down payments, or business capital. Cash-out refinance rates are typically 0.125-0.25% higher than rate-and-term refinance rates.
When Refinancing Makes Financial Sense
The break-even calculation determines whether refinancing is worthwhile. Divide total closing costs by the monthly payment savings to find the number of months to recoup the refinance cost. If closing costs are $8,000 and the monthly savings is $400, the break-even is 20 months. If you plan to stay in the home longer than 20 months, the refinance saves money. California closing costs for a refinance typically run $4,000-$10,000 depending on loan amount and county. No-closing-cost refinance options build the costs into a slightly higher interest rate, eliminating the break-even consideration but costing more over the loan's full term.
Last updated: July 2026. Sources: Fannie Mae and Freddie Mac refinance guidelines. HUD FHA Streamline documentation. VA IRRRL program requirements.
Frequently Asked Questions — Refinance Loans
When should I refinance my mortgage?
When you can reduce your rate by 0.5% or more and plan to stay long enough to recoup closing costs. Also consider refinancing to switch from adjustable to fixed, shorten your term, or access equity.
How much equity do I need to refinance?
5% for rate-and-term conventional. 3.5% for FHA streamline. 0% for VA IRRRL. 20% remaining for conventional cash-out. VA allows up to 100% cash-out.
How much does refinancing cost?
Closing costs typically run $4,000-$10,000 depending on loan amount and county. No-closing-cost options build fees into a slightly higher rate.
What is the break-even point on a refinance?
Divide total closing costs by monthly savings. $8,000 costs ÷ $400/month savings = 20 months to break even. Refinance makes sense if you'll stay longer than the break-even period.
Can I refinance with bad credit?
FHA streamline refinance has no minimum credit score for existing FHA borrowers. VA IRRRL has minimal credit requirements. Conventional refinance needs 620+.
What is a cash-out refinance?
Replacing your mortgage with a larger loan and receiving the difference as cash. Requires 20% remaining equity on conventional, up to 100% on VA.
Can I refinance to remove PMI?
Yes. If your home has appreciated or you've paid down the balance to 80% LTV, refinancing to a new conventional loan eliminates PMI. Or request PMI removal from your current lender.
How long does a refinance take?
25-35 days for rate-and-term. 30-40 days for cash-out. VA IRRRL can close in 15-21 days.
Can I refinance an investment property?
Yes. Investment property refinances require 20-25% equity and carry rates 0.5-1% above primary residence rates. DSCR refinance uses rental income for qualification.
Should I refinance from FHA to conventional?
If you have 20% equity and 700+ credit, refinancing from FHA to conventional eliminates permanent MIP, potentially saving $300-500/month.
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