When it comes to refinancing, there are several different options – because each homeowner has unique goals. The key to accomplishing those goals is to choose the refinance option that’s right for you. And we’re here to help you do it. To help you become familiar with them, here’s a brief introduction to each kind of home loan refinance.
At Crystal Clear Mortgage, we can help you explore your refinancing options
A general mortgage refinance is one in which a homeowner essentially trades a previous loan for a new loan with no cash back from the transaction. There are several reasons a homeowner may want to get a mortgage refinance.
Rates are a big one. Especially in today’s interest rate environment, rates can be substantially lower now than they were when a homeowner first financed a home. In that instance, Refinancing the home, even with the associated closing costs, can save a borrower thousands over the life of the loan.
In other circumstances, a borrower may have chosen a 15-year term for the loan at the time of purchase. Perhaps the borrower retired, changed jobs, or took on additional expenses. Either way, the payment associated with a shorter-term loan may have just become too much to juggle. For this homeowner, a refinance offers a perfect opportunity to trade the 15-year loan for a 30-year loan, which can dramatically decrease the size of the monthly payment.
Cash-Out Refinance Loans
A cash-out refinance allows the homeowner to refinance the home to pull back out some of the equity already paid into the home. For homeowners who have a lot of equity in their home, a cash-out refinance may be a solution for getting much-needed cash for a variety of goals. Perhaps the homeowner wants to get started on home improvements or pay off other debt.
But because the principal of the loan is being increased, a cash-out refinance is sometimes more difficult to obtain than a straight refinance home loan. Credit qualifications can be stricter and you may not have access to the lowest refinance rates with a cash-out refinance home loan. This is because by reducing the principal on the loan, the risk to the lender is increased.