Refinance

There are currently two types of conventional refinancing that most conventional mortgage lenders perform to refinance a borrower’s home. The most common mortgage refinance method is called the ‘Refinance Cash Out’.

Refinance Cash Out
A mortgage refinance is considered ‘cash out’ when more than 2% or $2,000 (whichever is less) is received from the equity of the home. Home debt consolidation loans are considered cash out refinances as they take out more than 2%/$2,000 to consolidate their debts. Cash out refinancing is also used toward home improvements or home renovations. Homeowners are updating their homes with new kitchens, garages, decks, sun rooms, patios, mud rooms, bathrooms, basements, attics, landscaping, and maybe a new bedroom. Parents are also taking cash out to pay their children’s future college expenses. Some homeowners take the cash out to invest into the stock market or into a second home. There are only a few homeowners who like to hold the cash in their bank accounts or invest it with an investment property. Cash Out mortgage refinancing may also incur higher mortgage rates than a ‘refinance rate term’. Conventional mortgage loan refinancing may allow go up to 90% of the loan to value.

Refinance Rate Term
A Rate Term Refinance is when a mortgage borrower isnt interested in taking any cash out. They are looking to lower their interest rate or to shorten the mortgage term. Sometimes you can do both because of dropping mortgage rates. A mortgage term can be lowered from a 30yr fixed to a 25, 20, 15, or 10yr fixed term. Whether the mortgage rate is unchanged or not it is called a term refinance. This type of refinance is uncommon as most mortgage borrowers would like a lower mortgage rate. Rate Term refinances help many borrowers avoid adjusting ARMs or to take advantage of the current mortgage rates. Many mortgage borrowers may have rebuilt their credit score, and would like to refinance out of a subprime mortgage. Rate Term refinances can also help those looking to get out of paying PMI. With home appreciation the borrower will have a new loan-to-value, and may qualify to refinance out of the PMI. A borrower may also take out $2,000 or 2% (whichever is less) of the loan amount. These numbers can’t be exceeded or it will turn into a cash out refinance.
Reasons to Refinance

1. Lower monthly payments
2. Remove PMI or Lower PMI
3. Remove a 2nd mortgage, HELOC, or Home Equity Loan
4. Consolidate credit cards, auto loans, unsecure debts, etc
5. Invest in real estate
6. Lower interest rates
7. Shorter Mortgage Term
8. Get into a Fixed Rate Mortgage
9. Home Improvements
10. Extra Cash
11. Invest in stocks, mutual funds, bonds, etc
12. Pay college expenses
13. Pay medical bills