With mortgage rates hovering at or near record lows, there’s been a lot of interest in refinancing lately.
Heck, you may be able to lower your interest rate by 1% or more, resulting in some serious savings every month.
But when inquiring about a refinance, you may be wondering which type is right for you in your current situation.
So let’s take a look at five different types of refinance loans:
Rate and 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.
This type of refinance is perfect for those simply looking to lower their rate and/or change loan programs.
Cash Out Refinance
On the other hand, if you’re 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 next refinance option was born out 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.
Lastly, 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.