Know Your Refinance Options
Because of the current low rates, refinancing has become very popular. Homeowners wanting to take advantage of these low rates should know about their refinance options.
When you refinance to lower your rate or improve your mortgage terms, you are doing what is called a “rate and term refinance.”
With this refinance option, your objective is not to take cash out of your home’s equity. If you were to refinance from a 30-year loan into a different 30-year loan with a rate .5% lower than your current rate, that would be an example of rate and term refinancing. Other examples of this refinance include switching from an adjustable-rate mortgage to a fixed-rate or switching from a 30-year loan to a 15-year loan.
The other type of refinancing is called a “cash-out refinance.” The objective of this refinance option is to pull a large amount of cash out of your equity. The rate for this will be close to .125% higher than for a rate and term loan.
Even if you don’t receive cash at closing, your loan may be considered a cash-out refinance. If you have a second mortgage or Home Equity Line of Credit (HELOC) and get the second loan after purchasing your home, a new loan to pay off both loans will be a cash-out loan.
Do You Have Sufficient Equity?
A lender considers your property security and equity for the loan they give you. They are always concerned with the Loan to Value Ration (LTV). The LTV is the loan amount provided as a percentage of the appraisal value of your home.
For example, if the appraiser says your home’s worth is $500,000. and you are asking for a $400,000 loan; your LTV is 80% ($400,000 is 80% of $500,000). When you start refinancing, you want to ensure that your home’s value will uphold the loan you want.
Cash-out refinances depend significantly on if you have the appraised value and equity to take out the amount you want to borrow. These factors even affect the rate and term refinance, depending on whether home values have gotten considerably higher or lower since the beginning of your last mortgage.
Start Your Refinance Today
Many homebuyers are eager to learn more about their refinance options for their home and start taking advantage of low interest rates and more flexible terms. Working with an expert and reputable lender can help you find the right loan that meets your refinancing needs.
If you would like to learn more about how you can start refinancing your mortgage or to discuss your qualification in more detail, you can reach out to one of our expert Client Advisors. Our team is available 7 days a week by email at [email protected] or by phone at (855) 855-4491.