In mortgage refinance, the bank or lender pays off your previous loan and replaces it with a new one; this is why the term refinance is used. Most borrowers go for refinancing to lower their interest rate and shorten their payment term or to take advantage of shifting some of their home’s equity into cash. There are two types of mortgage refinance:
- Rate and Term Refinance
- Cash-out Refinance
If you go for rate and term refinance, you will be getting a new mortgage with a lower interest rate and possibly a shorter payment term (30 years changed to 15 years).
By choosing cash-out refinance, you can refinance up to 80 percent of the current value of your home for cash. Thus, why it is called cash-out refinance. For example, the value of a home is $100,000, and you owe $60,000 on your loan. Your lender can give you $20,000 in cash-out, making your new mortgage $80,000. In a cash-out refinance, you are not always saving money by refinancing but getting a lower-interest loan on some needed cash. Are you thinking about buying a house? Here are the top tips to follow before applying for a mortgage.
Reasons to Choose Refinancing
- Move from ARM to FRM: If you currently have an Adjustable-rate mortgage and are concerned about future rate increases, switching to a Fixed-rate Mortgage (FRM) may be excellent. If you plan to maintain the mortgage for a lot longer, this is a good option. To know more about the adjustable rate or fixed-rate mortgages, click here.
- Eliminate Mortgage Insurance (MI or PMI) Premium: Whether your home’s value has increased, you’ve made sufficient principal payments or both. As a result, you have 20 percent equity in the house or can bring in some cash. If that’s the case, and you’re already paying mortgage insurance, it’s time to abolish the annoying mortgage insurance.
- Get a Lower Interest Rate: If your interest rates are higher than the market, your credit score was not bad when you got the loan or for any other reason. If that’s the case, you have a straightforward reason to refinance.
- To Shorten the Loan Term: If your existing mortgage plan is for 30 years and 20 years are remaining, you can refinance your mortgage for 15 years. Doing so will provide you with long-term saving opportunities. In this case, your monthly installment cost will be higher, but you will pay off your home faster. You should visit this link to learn about the Top 3 Ways to Benefit from a Home Equity Loan.
What Are The Pros and Cons of Refinancing a Mortgage?
- Refinancing can lower your interest rate.
- By choosing mortgage refinance you can decrease the term of your loan and pay it off sooner.
- You can cash out your home’s equity and take cash out at closing.
- You could change your mortgage type from an adjustable-rate to a fixed-rate mortgage, or vice versa.
- You’ll have to pay closing costs.
- You may have a prolonged loan term, which will increase your costs and push back your payoff date.
- Your home’s equity goes down if you take cash out.
- Your credit score will temporarily go down.
At LeapFinancial, we’re here to help make the home buying process as stress-free and enjoyable as possible. Whether you’re a first-time homebuyer or looking to expand your real estate portfolio, we’re here to help you every step of the way. Feel free to contact our team today to help get you started! If you have a less than average credit score, are looking for a loan, and own your home, call us at 1-844-929-5327. We will be happy to help secure you a mortgage.