Finances

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!

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The ins and outs of different mortgage refinance types

Refinancing a home
Types of mortgage refinance: what is the best option for you? Source: Freepik

Are you considering refinancing your mortgage? You must know the options and types of mortgage refinance in the market!

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How to refinance your mortgage

Are you thinking of refinancing your mortgage? This comprehensive guide will take you through the entire process, step by step. Read on.

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.

Rate-and-term refinance

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Five main types of mortgage refinance pros and cons. Source: Freepik

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.

Pros 

  • Good to lower monthly payments;
  • Potential fewer interest rates;
  • Can work to make loan terms shorter.

Cons

  • Depends on the market interest rates.

Cash-out refinance

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.

Pros 

  • Allows getting cash from your home equity;
  • Allows achieving other financial goals;
  • Available for conventional and government-backed loans.

Cons

  • Require normally higher credit scores;
  • Demands awareness of the new terms;
  • Considerably high home equity is required.
house-break-concept-3d-rendering

Balloon mortgage: is it right for you?

A balloon mortgage can be a great option for certain borrowers. Get all the basics here, from what it is to how it works and who should consider one!

Streamline refinance

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.

Pros 

  • Lower closing costs;
  • Faster process;
  • Fewer documentation requirements.

Cons

  • Only available for government-backed mortgages.

Cash-in refinance

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.

Pros 

  • Good when you don’t have home equity;
  • Useful to build home equity.

Cons

  • 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.

Pros 

  • No upfront payments.

Cons

  • Can cost more over time;
  • Advantageous only in the short term.

Which type of mortgage refinance should you choose?

Female hands typing on computer keyboard
Which type of mortgage refinance should you choose? Find out! Source: Freepik

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!

Bottom line

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.

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WesLend Financial Mortgage review

Learn everything this lender is about in our WesLend Financial Mortgage review. Enjoy flexible interest rates and several loan options.

About the author  /  Luis Felipe Regueira

I needed to learn about finances when I was in culinary school and wanted to save money to start my own business. So I haven't stopped because I believe studying and writing about the topic can help more people achieve their goals. Currently, I write about finances and run a small coffee shop.

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