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Home Loan Refinance – Loan Smart

Home Loan Refinance

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Overview

There are a variety of refinance mortgages types such as rate-and-term, cash-out, and even cash-in. The refinance type that is best for you will depend on your individual circumstance. With a refinance, the first loan is paid off, and a new loan is created. Refinancing can be a good way to convert an adjustable loan rate into a fixed rate, and/or obtain a lower an existing interest rate. Refinancing is the process of obtaining a new mortgage in an effort to reduce monthly payments, lower your interest rates, take cash out of your home, or change mortgage companies.

Types of Home Loan Refinance

RATE & TERM REFINANCE
The rate and term refinance is is the most common type of refinance, where the original loan is paid off and replaced with a fresh loan with a new rate and set of terms. For example, you may refinance your adjustable-rate mortgage and opt for a 30-year fixed instead to take advantage of the stability.

CASH OUT REFINANCE
If you are in need of cash, a cash-out refinance might be just the ticket. It involves pulling out equity from your home, resulting in a higher loan balance. Ideally, you can pull out cash and snag a lower interest rate all at the same time. Of course, you’ll be stuck with a larger loan amount, which will raise your monthly mortgage payment. However, you may be able to offset that rise with a lower interest rate on the new loan.

CASH-IN REFINANCE
There are times when you may want (or need) to bring in cash while refinancing, perhaps to keep the loan amount below a certain threshold or the loan-to-value below a certain limit. A cash-in refinance allows you to do just that, resulting in a smaller loan amount with a reduced monthly payment.

HOME AFFORDABLE REFINANCE (HARP)
This refinance option is a product of the ongoing mortgage crisis. The Home Affordable Refinance Program allows struggling borrowers to refinance up to 125% of the value of their home, helping “underwater” homeowners take advantage of the low interest rates on offer. But the mortgage must be current, tied to a 1-4 unit owner-occupied home, and guaranteed by either Fannie Mae or Freddie Mac.

SHORT REFINANCE
A short refinance is a transaction in which your bank or mortgage lender agrees to pay off your existing mortgage and replace it with new a loan with a reduced balance, essentially helping you avoid foreclosure. They aren’t easy to come by, but some lenders may be offering them as an alternative to a short sale, or worse, foreclosure. Be sure to go over all your options with your loan officer or mortgage broker to ensure you end up with the right product.

FHA STREAMLINE REFINANCE
An FHA Streamline Refinance allows borrowers to in some cases refinance when they owe more than their home is worth. In many instances, an appraisal is not needed. The current loan type must be FHA and the borrower will need to be current on their payments. This type of refinance does not allow for additional cash-out.

Reasons To Refinance

When you refinance your mortgage, you are applying for a new loan. By refinancing, you are actually paying off the old loan by obtaining a new one

Payment
Refinancing May Help You Obtain A Lower Monthly Mortgage Payment

Interest Rate
Home Owners can Reduce Their Interest Rate or Lock In a New Low Fixed Rate

Mortgage Insurance
Refinancing Your Mortgage Can Allow For the Removal of Mortgage Insurance When Applicable

Cash Out
When you Refinance you can typically use your home equity to take cash out

What’s Needed To Refinance

Many banks and lenders will require borrowers to maintain their original mortgage for at least 12 months before they are able to refinance. Each lender may vary with their terms are requirements. Therefore, it is in the best interest of the borrower to check with the specific lender for all restrictions and details

Credit
In Most Cases, Your credit score and payment history will be Reviewed during the Refinance Process

Income
In Most Cases, Your income and employment history will be reviewed during the refinance process

Savings
Some lenders will verify your assets (stock, retirements and savings accounts) during a refinance

Appraisal
In many cases, an appraisal to determine the current value of your home will be needed