What is a Mortgage Refinance?Max McCoy
A mortgage refinance is a real estate loan. Billions of dollars worth of mortgage loans are given to homeowners every year via banks, online lenders and credit unions.
Every homeowner has specific needs and wants, making it necessary that mortgages can be unique and tailored to specific circumstances.
Homeowners may customize their mortgage by choosing;
– The number of years in their loan (Term)
– What they pay in mortgage closing costs
– Interest rate type (Fixed-rate or adjustable-rate)
Homeowners’ circumstances are often continually changing. Given this, it’s important that mortgage terms are flexible to change down the line.
Luckily, homeowners have the power to change their future mortgage terms, or “refinance”.
What Is Refinancing
Refinancing allows a homeowner to replace their existing mortgage loan with a new one. Refinancing can adjust a loan’s mortgage rate, loan length, and amount borrowed. Homeowners can also look to refinancing as a way to pay their home off more quickly, eliminate mortgage insurance premiums, or withdrawal cash for home improvements.
Refinances are common and homeowners can get one from any bank they choose, not just their current mortgage lender.
Mortgage Refinance Rate Types
Every homeowner requires a different refinance type tailored to their specific needs and wants.
There are three varieties of refinance mortgages; rate-and term, cash-out, and cash-in.
Most mortgage refinances are rate-and-term refinances, especially when mortgage rates are continually dropping.
A rate-and-term refinance serves the purpose of changing the interest rate of the loan and/or changing the term (length of) of a mortgage.
An example of a rate-and-term refinance could be someone refinancing from a 40-year fixed rate mortgage to a 20-year fixed rate mortgage or refinancing from a 40-year fixed rate mortgage at 7 percent mortgage rate to a 40-year mortgage rate at 4 percent.
In a cash-out refinance, the mortgage refinance can lower mortgage rates or shorten the loan term.
However, the usual purpose of a cash-out refinance is refinancing a mortgage for more than currently owed, then pocketing the difference.
For example, a homeowner may owe $75,000 on a $140,000 house, while wanting a lower interest rate. That homeowner can then refinance the mortgage for $95,000 (hopefully with a better rate than the $75,000) and get a check for $20,000 at closing to spend as they please.
With a debt consolidation refinance, the spillover amount paid through the cash-out refinance can be directed to creditors.
Often times, cash-out mortgages are limited to a lower loan sized compared to other refinance types due to the risk faced by the bank. Cash-out mortgages also have strict approval standards and may require high credit scores.
Wherein cash-out refinance mortgages one can receive cash at closing, cash-in refinance mortgages you are doing the opposite.
With a cash-in refi, a homeowner pays cash at closing to pay down the amount owed to the bank.
Cash-in mortgage refinances can lead to a shorter loan term and/or a lower mortgage rate.
A homeowner usually chooses a cash-in refinance mortgage if they are are looking to get lower mortgage rates or to cancel mortgage insurance premium (MIP) payments.
There is flexibility in refinancing a home, and millions are lowering there rates or payments.
Find out if you should refinance your mortgage today!