Refinancing your mortgage is a useful tool for reshaping your mortgage to better suit your personal and family financial circumstances.
Refinancing is the process of re-questioning and replacing existing mortgage loans with a new set of loan terms and conditions. Refinancing can lower monthly mortgage payments and widen the financial horizon of homebuyers.
What is Refinancing?
Refinance housing loans is the process of replacing old mortgage loans with a new set of loan terms and conditions. Refinancing is not a straightforward replacement of one type of mortgage loan with another.
Different types of refinancing can be used to create very different outcomes for homebuyers. For example, a cash-out refinance may lower monthly house payments but increase the amount of equity in your home. In case you want to purchase more than one property, you can apply for blanket mortgage that enables you to buy multiple properties.
How is Refinancing Different from Repayment?
While refinance is not a straightforward replacement of one type of mortgage loan with another, it can be viewed as a transaction that involves both cash and stock.
You may have purchased a house with cash, or you may have borrowed money from a mortgage lender who offered you a fixed rate of interest. In either case, refinancing is a two-part process.
First, you and your mortgage lender must agree on a refinance plan. Then, you and the homebuyer can sign on the dotted line and complete the refinance. The lender will then come to the table and refinance your existing mortgage loan with new terms and conditions.
Different Types of Refinance
There are a variety of different refinance options available to homebuyers. Some are cash-out refinances, while others are structured as a capital gain refinance. We’ll break down the different types of refinancing below.
Cash-out Refinance – A cash-out refinance is the least expensive refinance. The borrower simply reduces their mortgage balance and then uses the new funds to pay for their new house.
Capital Gain Refinance – A capital gain refinance is similar to a cash-out refinance, except the borrower takes advantage of the increase in their respective equity (cash) source to pay for their new house.
Sell-Back Refinance – A sell-back refinance is similar to a cash-out refinance, but instead of using the money from the refinance to pay for your new house, you sell your old house and use the cash from the sale to pay for your new house.
Pros and Cons of Refinance
There are many advantages to refinancing your mortgage. Overall, refinancing can save you a significant amount of money over the life of your loan. Here are a few reasons why refinancing your mortgage is a good thing.
Better Rates: Refinancing allows you to get the best rate available on the current market. You might be able to get a lower rate on your mortgage insurance (Mortgage Insurance Rate) than when you bought your house.
Spend Less On Credit: Refinancing will reduce your monthly interest payments. This will allow you to make more money over the life of your loan.
Avoid Paying Higher Annual Interest: Home Equity Loans and Home Equity Refinancing have a lower interest rate than a traditional mortgage. Also, you can pay them off faster.
If you’re thinking about refinancing, now is the time. Home values have been rising, interest rates have been rising, and loans have been rising. Refinancing now and saving is the best-case scenario.
Do you have a question about anything mortgage-related? Ask below! You can also check out our guide on how to buy a house and how to refinance a house.
Both of these guides can help you with your refinancing needs.
Now, go forth and refinance!
