Refinancing is the replacement of an existing mortgage with another mortgage under different terms. The terms and details of the mortgage loans can be customized by the homeowner as far as the rate of a new mortgage loan, the length or duration of the loan, and the total amount borrowed. The refinances are used to decrease the monthly mortgage payment, to take out the cash for necessary house improvements and to cancel any mortgage premiums. Mortgage refinancing is not rare and pretty common in today’s market.
What is Mortgage Refinancing?
The mortgage is a loan that is used to purchase a real estate or a property. These are available through banks, brokers and mortgage companies. Hundred and millions of dollars worth of mortgage loans are extended to borrowers every year. However, a mortgage is not a one-size that fits all. You can customize it as per your necessity.
The borrower decides on the number of years to repay the loan, the acceptable of interest rate and fees charged by a lender. If the borrower fails to meet the timeline and repay the loan within a given period, the lender can foreclose on the property. Under the current law, the borrower has a grace period where they have the chance to repay the loan within a specific time frame without incurring a penalty. If they don’t pay within the given timeline, the lender can and will have the option to foreclose and take over the property. Many arrangements can be made depending on the situation of the borrower and the lender. Refinancing is one of the options.
The needs of the homeowners are always changing. Today’s needs will be different from tomorrow’s. The home refinancing is the process through which the terms of the mortgage loan can be improved. Home refinancing merely is replacing the current home mortgage loan with a new one with a different rate, term, or both. A borrower may choose to refinance with their current mortgage company. However, they are not limited to the current mortgage holder. They can choose to use any bank, broker or mortgage company.
Homeowners might refinance to lower their current rate, to cut the term and pay off the home faster, or use the equity of their home to fund home improvement projects, pay for college education, or pay off high-interest credit cards. They can do as they please with the proceeds of the refinance transaction as they want.
Types of Refinancing
The two main types of mortgage refinance programs: (1) Rate and Term refi, and (2) Cash-out refi. Depending on the circumstances and objective, the borrower can tailor the refinance option to suit their specific needs.
Rate and term refinancing:
In a rate and term refinance, a homeowner can refinance to a lower interest rate, a shorter term, or both. Lowering the interest rate results in a lower monthly mortgage payment. Cutting the term, on the other hand, will increase the monthly payment but will pay-off the loan in a shorter period.
In the cash-out refinancing, the borrower pulls money out from the property in the form of equity. The money the borrower gets at closing from a cash-out refi can be used for any purpose they deem necessary. It can fund a long-planned vacation, send the kids to college, pay off high-interest credit cards and personal loans, use the funds for home improvements, buy a new car, etc. They are no restrictions as far as what they can do with the equity they pull out.
If you are a homeowner looking to refinance, rate and term or cash out, contact a Home Loan Specialist near you.