People decide to refinance their existing loans for varied reasons. Homeowners usually decide to apply for refinance loans either to change the current terms of their mortgage, tap the equity built from their property over the years or try to score a mortgage to a lower interest rate.
But before diving right into the refinance processes, determining the reason why you want to refinance is always key. Other than that, it’s important to know that not all refinancing loan option is the same. Each one calls for different purposes and each has a unique set of guidelines that set each other apart.
This is why doing your research is important to know what type of refinance loan would work for your situation. You should also know whether or not refinancing is really the next best move for you. Are you ready to refinance? Here are the different types of refinance loans in the market today.
Rate and Term
Perhaps this is the most common refinance type. Rate and term refinance is where your existing loan is paid off and start off with a new one with a new set of terms. For example, if you’re currently having an adjustable rate mortgage (ARM) and seeking to change the terms of your loan to a fixed-rate for more stability and maybe on a shorter span, rate and term refinance types is what you’re looking for.
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In cases where you want to get an amount of money after you refinance, maybe a cash-out refinance loan is for you. This type pulls out equity out of your property, get a lower interest rate and pocket the difference. The money you get after would be used however you want it to.
There are special cash-out refinances offered under specific qualifications. One example here is the VA cash-out refinance loan. This is a refinancing option under the U.S. Department of Veterans Affairs and is offered to eligible veterans.
The cash-in refinance is quite the opposite to that of cash-out. From its name, this refinancing option would need to have an amount of money put in to lower the mortgage balance.
This happens when a home needs to pay in an amount of money to attain a certain loan-to-value ratio and be qualified to refinance.
HARP stands for Home Affordable Refinance Program. This type of refinance came to be after the mortgage crisis in 2008. HARP is the refinancing answer to struggling homeowners. It allows borrowers to refinance their home up to 125% of its value.
In order to qualify, the property should either be your primary or secondary residence, lenders should see that your property value shows a decline, your loan should be a Fannie Mae or Freddie Mac (GSE) backed loan, and that you have made on-time payments 12 months prior your application.
In the end, it should be stressed out that refinance loans only works when the situation really calls for it. Therefore, it’s important to determine first if you really need to refinance. Go through all the pros and cons, too. It pays to weigh your options well before finally coming up with your final decision.
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