Which Type of Refinancing is Right for Me?
If you are considering a mortgage refinance, you need to know the different types of refinance to decide which is best for you.
How can you decide which type of refinancing is right for you? Keep reading to learn about your them, and contact us to explore your options!
1. Rate-and-Term Refinance
When you think of a refinance, a rate-and-term refinance is probably what you are picturing. In this type of refinancing, you replace your original mortgage with a new one, with entirely different terms.
You will get a new interest rate and new mortgage terms, hence the name "rate-and-term refinance." This type of refinance works for conventional or FHA loans, and you can refinance from an FHA loan to another FHA loan, from an FHA loan to a conventional loan, or from one conventional loan to another.
The details or a rate and term refinance will vary, but in general it benefits you if interest rates are lower now than they were when you closed on your existing mortgage.
2. Cash-Out Refinance
In a cash-out refinance, you also replace your existing mortgage with a new one. In this type of refinance, though, you take out a larger loan than the amount you owe on your home and receive the surplus in cash.
This is an option to you if you have significant equity in your home due to renovations or a growing real estate market in your area from increased demand or the passage of time.
In most cases, a lender will not allow you to take out all of your home's equity, but you can usually get up to 80% of it in cash.
3. Cash-In Refinance
A cash-in refinance happens when you want to refinance but do not have an 80% LTV, or loan to value ratio. In other words, if you had an initial down payment of less than 20% and your home equity has not yet increased to 20%, a lender will probably require you to make an initial payment to bring your LTV down to 80% or lower.
This type of refinance will benefit you if you'd like to lower your interest rate before your home equity is 20% or higher. You may also want to do this to lower monthly payments by making a one-time large payment.
4. No Closing Cost Refinance
This type of refinance is a bit of a misnomer because there are still closing costs involved. However, you won't be required to pay them upfront. Closing costs will instead be rolled into the loan by being added to the principal or reflected in the interest rate.
If you don't have thousands of dollars to pay in closing costs, or even if you just prefer to keep more cash on hand, you can opt for a no closing cost refinance, where closing costs are added into the life of the loan. This will result in a slight increase in monthly payments but initially saves you money at closing.
5. Streamline Refinance
Streamline refinancing does not require an appraisal or a credit check. This type of refinance may benefit you if your finances or home equity are not what you want them to be.
In this type of refinance, you switch from whatever government-backed loan (FHA, VA, or USDA) you have to another of the same kind, but it is not available for conventional mortgages.
6. FMERR or HIRO Refinance
If you have a conventional mortgage, but do not yet have the equity you need for a cash-out or rate-and-term refinance, you may want to consider an FMERR (Freddie Mac Enhanced Relief Refinance) or HIRO (Fannie May High LTV Refinance Option) refinance.
In both of these refinance options, you may qualify with little equity in your home, or even if you are upside down on your mortgage.
It's clear that there are many refinance options available when you're ready to explore them. Contact us today to see which type of refinancing might be best for you!