A home might be a good option for homeowners who want to lower their monthly mortgage payments. Refinancing involves taking out a new mortgage to replace your existing one with new terms and potentially a lower interest rate. Here is some home refinance options to consider.
Rate-and-Term Refinance
A rate-and-term refinance the most common type of refinance. It allows you to change your mortgage’s interest rate or term without changing the loan amount or taking cash out. If you have a high-interest rate, you can refinance to a lower rate to reduce your monthly payments. Alternatively, if you want to pay off your mortgage faster, you can refinance to a shorter term, such as a 15-year mortgage.
Cash-Out Refinance
A cash-out refinance you to borrow more than you owe on your current mortgage, using the difference in cash. For example, if you owe $200,000 on your mortgage and your home is worth $300,000, you could refinance for $250,000 and receive $50,000 in cash. The cash can be used for home improvements, paying off debt, or other expenses.
However, remember that taking cash out of your home increases your mortgage balance and could increase your monthly payments.
Streamline Refinance
A streamlined refinance a simplified refinance process for homeowners with an existing FHA or VA loan. The streamlined refinance doesn’t require a new appraisal or credit check, and it may not require income verification. The goal is to make the refinance process faster and easier. However, the interest rate reduction may be less significant than other refinancing types.
HARP Refinance
The Home Affordable Refinance Program (HARP) is a government program designed to help homeowners underwater on their mortgages (owe more than their home is worth) refinance to a lower interest rate. HARP is available to homeowners with a mortgage backed by Fannie Mae or Freddie Mac who have not missed any payments in the past six months.
FHA Streamline Refinance
An FHA Streamline Refinance is a simplified process for homeowners with an existing FHA loan. The streamlined refinance doesn’t require an appraisal, credit check, or income verification. The goal is to make the refinance process faster and easier. However, the interest rate reduction may be less significant than other refinancing types.
When deciding if a home refinance right for you, consider the costs associated with refinancing, such as closing costs, appraisal fees, and lender fees. You’ll also want to compare your existing mortgage’s interest rates and terms with the new mortgage. It’s important to remember that refinancing can extend the term of your mortgage, which means you’ll pay more interest over time, even if your monthly payments are lower.
A home can be a wise financial decision for many homeowners who want to lower their monthly mortgage payments or use their home equity. However, weighing the costs and benefits of each type of refinance is essential as comparing your existing mortgage’s terms and interest rates with the new mortgage. A mortgage professional can help you determine which home refinance option is best.