The process of getting a new loan against your current property so that you can use the same to pay off your current mortgage and other loans you might be having is called mortgage loan refinance. This option comes in extremely handy for those who are looking to reduce their current interest rate or want to change the duration in which they will pay their mortgage.
It’s time to look for a refinance if you are paying more at the present mortgage terms whereas with a refinance you would be required to pay less. The process helps you attain freedom from the expensive interest rates. Even those borrowers, who don’t enjoy good credit scores manage to get mortgage refinance for themselves. If, however, you have taken an unsecured personal loan, paying off the same with the help of mortgage refinance will be a bad idea as the unsecured loan would come under a secured status which means you will be under a greater responsibility to pay off the debt.
Do Your Homework
Before you decide to go for a mortgage loan refinance, you’ll need to be sure about its cost and how it’s going to be helpful for you in the long run. Take your first step only with professional advice as the refinance is secured against the property. It’s great that you are reading this article, but this piece of text intends to give you only a broad idea of the things. We don’t claim to replace professional advice or advisors, but yes, you’ll know your options before you make that vital decision. Also, if your spending habits which triggered the need for refinance remain the same, chances are you’ll be risking your home this time.
Rate and Term Refinance
The most common form of mortgage refinance is Rate and Term Refinance wherein you get a fixed rate mortgage which is a better rate and comes with a different term compared to your current mortgage. This option is considered the best option for those who are looking to reduce the rate and can afford a shorter term. There are other cases, however, when people go for a longer term because they would like to pay lower mortgage payments.
Another option is that of Cash-Out refinancing in which you get refinancing for a higher amount than what is due. This situation arises when the value of the home owed by you goes up, or you have paid the mortgage company a substantial part due. It’s a good option for those who need money for kid’s education or are planning to make a new investment. Please note that a Cash-Out Refinance weakens your position in future refinances or home loan modifications.
Though the interest-only mortgages are not that popular anymore, but they allow you to pay the lowest possible payments initially, but the equity in the property is less because you haven’t paid the principal.
This option is best for those with varying financial situation as they can always take control when they can pay the principal.
Other options available in the mortgage market include:
1. Part and part mortgages
2. Two step mortgages
3. Assumable mortgages
4. Home equity loans
5. Home equity lines of credit
By now you might have understood why proper homework is necessary before you take your decision regarding mortgage refinance. The only person who knows your situation best, is you, therefore it’s only proper that you make use of your knowledge.