Refinancing is a versatile financial tool that can serve a variety of needs, such as lowering monthly payments or using your home’s equity to pay for things like renovations or even college tuition. But what kind of refinancing best serves your needs? Let’s look at the most common types and some key aspects of each.
Here, homeowners can refinance their mortgages at lower interest rates. While the amount of the loan doesn’t change, the monthly payments will be lower. Unless the borrower chooses to change the term – the length of repayment time – and to pay off a home in fewer years with monthly payments that are often similar to their pre-refinancing payments.
This one puts money in your pocket by turning a home’s equity into cash. With cash-out refinancing, the homeowner replaces the current loan with a new larger one at a lower interest rate, getting the difference between the two loan amounts in cash while often keeping monthly payments relatively the same. How much money? The amount can often go as high as 80% of a home’s value. Putting that money back into the home with renovations and remodeling (thus increasing the home’s value) is a popular option with cash-out refinancing, as are financial goals such as consolidating credit card debt.
The inverse of cash-out, here, homeowners – often those without substantial equity in their homes – put cash into the process rather than taking it out. It’s almost like a big second down payment with a new loan and new terms. Most people go this route to lower their monthly payments, as even if you’re refinancing at the same interest rate, you now have more equity in the home and a lower mortgage balance. This can be a forward-looking financial strategy, as increasing a home’s equity lowers the loan-to-value ratio (LTV) to give homeowners more refinancing flexibility in the future.
FHA Streamline Refinance
For homeowners with FHA loans (and perfect payment histories over the past year), an FHA Streamline Refinance can be a good option. And one that often moves faster than other refinancing methods; there is no need for a home appraisal or income verification with an FHA refi, which can be used to shorten the length of a mortgage, convert an adjustable-rate loan into a fixed-rate one, and reduce monthly mortgage payments.
If you’d like to discuss which refinancing option might be right for you, contact one of the loan experts at the Decker Group at First United Bank Mortgage at (972) 591-3097.