Types of mortgage refinance: what is the best option for you?
Find out what the best option of mortgage refinances is for you. Check the pros and cons of each one to make your best choice!
The ins and outs of different mortgage refinance types
Are you considering refinancing your mortgage? You must know the options and types of mortgage refinance in the market!
It’s a big decision you should research carefully before diving in. But don’t worry. This isn’t rocket science. Find out next everything you need to know!
What is a mortgage refinance?
Refinancing your mortgage can be a solution to help you save money. But how it works? Don’t worry. We will cover you with the answer!
A mortgage refinance replaces an existing mortgage with a new one, usually with more favorable terms.
To the borrower, it is a chance to get lower interest rates, shorter loan terms, or a change from an adjustable to a fixed-rate mortgage.
When you refinance your mortgage, you pay off your existing loan and take out a new one with different terms.
The new loan will typically have a new interest rate and payment schedule and may also involve changing your mortgage’s length or loan type.
5 main types of mortgage refinance: pros and cons
As we covered before, the main reason for a homeowner to get a refinance is to save money.
Whether it be lowering fees, length of terms, or another advantage.
Finding the best option for your needs depends on several factors.
Knowing the options available will help you find what fits best for you.
Several types of mortgage refinance options are available to homeowners, including the next.
This is the most common type of refinance involving changing the interest rate, term, or both on your existing mortgage.
The goal is to get a lower interest rate or shorten the loan term; that way, you should consider the economic mood for interest rates.
No wonder this is the most common type of refinancing, as it is the most affordable way for most homeowners to save money.
- Good to lower monthly payments;
- Potential fewer interest rates;
- Can work to make loan terms shorter.
- Depends on the market interest rates.
These types of mortgage refinance homeowners to borrow against the equity in their home and receive cash in exchange for refinancing.
With this refinance mortgage, the borrower gets a new home loan on their property. In that case, with a larger budget than the original mortgage.
The amount of cash you can receive depends on the equity you have in your home.
- Allows getting cash from your home equity;
- Allows achieving other financial goals;
- Available for conventional and government-backed loans.
- Require normally higher credit scores;
- Demands awareness of the new terms;
- Considerably high home equity is required.
These refinance only available for certain types of mortgages, such as FHA or VA loans.
For the borrower, it allows for a faster and simpler refinance process with reduced documentation requirements.
Finally, there are two kinds of streamlined refinance mortgages.
Credit qualifying requires a credit check, and non-credit qualifying normally doesn’t need a credit check.
- Lower closing costs;
- Faster process;
- Fewer documentation requirements.
- Only available for government-backed mortgages.
This is the opposite of a cash-out refinance, where the homeowner pays extra money to reduce the loan balance and potentially lower their interest rate.
When you pay off the amounts, you’ll reduce your mortgage’s LTV(loan-to-value) ratio. This way is possible to increase your home equity.
Also, the homeowner will naturally reduce the number of their loans, which can bring lower mortgage rates and decrease the loan terms.
- Good when you don’t have home equity;
- Useful to build home equity.
- Requires a lump sum payment;
- It takes considerable amounts.
No-closing cost refinance
No-closing-cost refinances mortgages are types of mortgage refinance where the borrower is not required to pay the upfront closing costs.
However, it’s important to note that the lender may still charge other fees or a higher interest rate to compensate for the waived closing costs.
This means that a no-closing-cost refinance may not always be the most cost-effective option in the long run.
Borrowers should carefully consider the overall costs and benefits before deciding on this type of refinance.
They will be effective in most cases for homeowners not intending to keep the house for long or to plan to refinance again in the short term.
- No upfront payments.
- Can cost more over time;
- Advantageous only in the short term.
Which type of mortgage refinance should you choose?
Refinancing can be a good option if you want to lower your monthly payment and reduce the total amount of interest you pay over the life of the loan.
However, it’s important to consider the costs of refinancings, such as closing, appraisal, and origination fees.
The borrower must know their financial situation, type of mortgage already contracted, credit score, and others!
When refinancing, you must assume that, in some cases, the costs can add up and impact the overall cost of the new loan.
This makes necessary deep research on the market!
Finding a mortgage refinance loan that fits your needs is the key to making a good deal!
To do so, you can count on the help of Weslend Financial Mortgage!
With more than 20-year experience, Weslend offers several loan options and flexible rates.
Apply today and discover their quick approval refinance options! Check out below.
About the author / Luis Felipe Regueira
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