TYPES OF REFINANCE
Rate and Term Refinance
The most common type of refinance is known as a “rate and term refinance” or a refinance to get a lower interest rate or change the terms of the original loan. Homeowners may also refinance into a different type of loan. For example, a first-time home buyer who used an FHA Loan might benefit from switching to a conventional mortgage loan after they have had several years to build their credit and improve their financial profile. This change to a conventional mortgage could remove the monthly mortgage insurance payment that is required with a FHA, or other loan program that began with mortgage insurance.
Cash Out Refinance
Some homeowners may choose a cash out refinance to raise the balance of their mortgage loan to pay for other expenses. Not to be confused with a Home Equity Line of Credit (HELOC), a cash out refinance involves originating a new mortgage for a larger value than the original loan. In the case of a cash out refinance, the monthly mortgage payment will increase to cover the cost of the larger loan. For a HELOC, the lender issues an agreed amount of money using the borrower’s equity in the home as collateral.
Cash In Refinance
A cash in refinance allows the borrower to lower their loan-to-value amount by making a payment toward the loan principal to potentially lower the monthly mortgage payment. A cash in refinance is a great option for a borrower who has the funds available through a bonus, inheritance, or other source.
When a home is need of repair or remodel, renovation financing may be a better option than taking out a personal loan or using a credit card. With home prices on the rise, many homeowners are choosing to stay in their home longer and complete repairs or remodels through renovation financing, rather than shopping for a new, more expensive home that fits their needs. With a renovation refinance the cost of the renovation is financed into the cost of
the existing mortgage into one convenient monthly payment.