Residential Home Refinances
Are you wondering how many types of mortgage loan refinancing options there are?
There are basically three types of residential home refinances:
Rate & Term:
This is where you are simply refinancing only your current mortgage balance(s) plus closing costs and nothing else. You are simply seeking a better rate, term or program to fit your ever-changing needs.
Cash-Out:
If there is a financial difference between how much you owe on your current mortgage(s) and how much your house is worth in the marketplace (equity), you may be able “cash out” the difference. You can use this cash out to help pay major expenses such as paying off high interest credit cards or medical bills. You can also use money received from a cash-out to make capital improvements to increase your home’s overall market value, buy an investment property to supplement your income or even take a much-needed vacation!
No Closing Cost:
You may have seen ads for a “no cost refi” loan lately, a mortgage program that promises no fees or out-of-pocket expenses when you refinance your existing mortgage. While this type of offer is by no means a new concept, it’s definitely a subject worth visiting to ensure people understand what they’re getting when they choose a no cost refinance option. A no cost refinance is essentially a loan transaction in which the lender or broker pays the settlement costs. You may be asking yourself how banks and lenders make up for the absence of fees that normally must be paid during a refinance (or purchase) transaction. Well, assuming the lender actually pays your closings costs, doing so will bump up your interest rate, sometimes dramatically, in order to make up for the missing fees that are typically charged at closing. Then they issue the borrower a lender credit to pay the settlement charges.It’s a simple trade – pay nothing now, but pay more over the life of the loan in the form of a higher mortgage rate. For some borrowers, a no cost loan is a necessity because they don’t have the required funds to pay all the fees at closing, but for others it’s a decision that will need to be made during the loan process.
Tip: The terms of no cost loans will vary by lender. Some programs may cover ALL closing costs, while others may still charge you for certain third-party fees such as appraisal/inspection, title, escrow, and even mortgage points! Be sure to pay attention to what fees are and are not covered. For example, if a bank advertises a “no lender fees loan,” they will expect you to pay for third-party fees, along with property taxes, prepaid interest, and insurance. Regardless, you can still attempt to negotiate a lower rate whether it’s no cost or no fee. This is the point where you need to ask yourself what you plan to do with the property and the mortgage.If you’re planning on moving or upgrading to a more expensive home in just a few years, or if you’re the type who refinances often, paying upfront costs for a lower interest rate will probably be a losing endeavor. For you, a no cost loan may actually be a good choice. After all, there’s no reason you should pay for a lower interest rate if you’re only going to turn around and sell/refinance a few months/years later. You’ll never realize the savings! But if you plan to stay in the home for five or more years (or whenever the break-even point takes place), it would make sense to pay a little more upfront for future savings. Why? Well, that $200 discount each month might ease your budgeting woes in the future, and amount to some serious savings if you stick with the mortgage for the long haul.
Remember, no cost loans aren’t inherently good or bad. They aren’t a scam and they aren’t magic. The money is either paid upfront or over time. Their associated benefit or cost will really depend on your unique financial situation, what the fees are, and what the interest rate impact will be. Make sure you do the math and compare options before signing on the dotted line!
Let Global Unity Mortgage take the guesswork out of choosing a loan program to fit your needs. Veteran mortgage broker Gary Cutler and the his Global Unity team strive for the chance to show you how easy a refinance can be when you have the most up to date information at your fingertips! When it comes to refinancing a home, valued clients, like you, have relied on him for decades. Let Gary and his team cut through the red tape and expertly guide you through the mortgage process, explaining your options and answering all your questions all the way to the closing. See our Testimonials Section to see what our past clients have said about us! Contact us today at (860)872-9479 or email at globalu@sbcglobal.net at your convenience. You will receive a prompt response!
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