Financing is defined as borrowing money to partially or completely pay for a property. In exchange for borrowing money, the lender gets an ownership stake in the property. This process is called a mortgage. But at some point, you may find your mortgage isn’t right for you anymore. You may want to lower your interest rate, shorten your loan length, or access the equity of your home. To do this, you have to refinance your home. There are three different types of refinancing mortgages, known as rate-and-term, cash-out, and cash-in.
The mortgage rate or loan term is the only term that changes in this refinancing policy. In some cases, both are changed. To qualify as a rate-and-term, a homeowner may close out with no more than $2,000.
This type of refinance mortgage may feature either a lower mortgage rate than the original home loan or a shorter loan term. However, the loan balance of the new mortgage is larger than the initial mortgage by 5% or more. Because the homeowner only owes the first mortgage’s amount to the lender, the extra money is paid out as cash at closing.
This mortgage is in contrast to the cash-out refinance type. A refinancing homeowner uses cash to pay the loan balance owed to the bank at the time of closing. It may then result in either a lower rate or a shorter term for the loan.
If you’re interested in securing a mortgage or have questions about refinancing, contact the experts at First Choice Lending Services, LLC.