Refinancing comes in different types. These include fixed rate mortgage, adjustable rate mortgage, cash in/cash out refinance, streamline refinance, and rate and term refinance. Before obtaining a new loan, borrowers should determine which type of
DC refinance is suitable to their needs and finances.
Fixed Rate Mortgage
This type of refinance offers stability and permanence when it comes to interest rate. For instance, if you have 10 years left in your existing mortgage, refinancing to a 5-year mortgage can increase amortization, but reduce the interest. You can always choose to refinance through a fixed rate mortgage if your income has increased enough to make payments affordable. Fixed rate mortgage is a good option, especially for homeowners who wish to stay in their homes for an indefinite period of time.
Adjustable Rate Mortgage
Compared with other types of
DC refinance, adjustable rate mortgage (ARM) offers a lower interest rate. This varies with each lender and calendar period. Homeowners who are stuck with high interest rate in their existing fixed rate mortgage and who intend to stay in their homes for only a few years can choose to refinance using an adjustable rate mortgage. Those with existing ARM can also choose to refinance with another ARM with a lower rate.
Cash In/Cash Out Refinance
Borrowers who need to bring in cash while refinancing may choose to obtain cash in refinance. This will keep the amount of loan below a certain limit, resulting in a smaller loan amount with reduced amortization. Cash out refinance, on the contrary, involves pulling out the equity from your loan, resulting in a higher loan balance. Such rise in amortization can be countered by a lower interest rate in the new loan.
Streamline Refinance
This type of refinance means less paperwork for the borrower while keeping the loan with the bank. The Federal Housing Authority (FHA) offers loans with streamline refinance option which do not require appraisal as long as the amount of the new loan does not exceed the amount of the existing loan. Streamline refinance insured by the FHA must include mortgage insurance premium (MIP), the only cost that can be added to your balance even if it causes the amortization to increase.
Rate and Term Refinance
Of all types of
DC refinance, rate and term refinance is the most common. This type of refinance will simply lower the monthly payments by replacing the existing loan. A borrower with an existing rate and term refinance may choose to obtain another rate and term refinance as many times as the borrower can. Lenders, however, require those borrowers financing a house to stay in the house for at least six months before refinancing.
