For most homeowners there comes a point during the life of their loan where they start to entertain the idea of a refinance. They may have noticed that the interest rates have dropped, or they’ve built up equity and are thinking of putting it to good use. The questions that should be asked before the refinance is, why are you refinancing, will it be beneficial, and what are my refinance options? While your loan officer and lender will be able to give you all the details of the refinance, here is a look at why people refinance and what options are available for them.
Refinance Programs for Every Need
Why are you refinancing? This is the first question you should ask yourself because it’s going to determine the refinance program that you pick. For most homeowners the reason they refinance will fall in one of these categories.
- They want to pull out the equity and use it for other investments or debt consolidation.
- They want to reduce the interest rate and/or the monthly mortgage payment.
- They want to adjust the loan terms, switching from and ARM to a fixed mortgage or altering the amount of time required to pay off the loan.
- They have family issues that must be dealt with.
- They are falling behind on their mortgage and want to alter it to make the burden easier to handle.
Granted, these aren’t the only reasons people refinance, but they are the most common. So where do you fall in this list? By deciding what you need out of a refinance, you’ll be better equipped to choose the best refinance for you.
Understanding Your Refinance Options
When refinancing you’ll find that you have many options. You can get a cash-out refinance, a streamline refinance, a no-cost refinance, and multiple FHA options available that you can be approved for if you’re struggling to make ends meet financially. Not every lender will be willing or able to meet your refinance requirements, and some will be more helpful than others in making it work; getting a clear idea of what you want out of your refinance makes the process easier.
The cash-out refinance is ideal for people who want to take their equity and use it to consolidate debt or to roll into other investments. More often than not the people applying for a cash out refinance are in a good position financially to take on the addition demands of an increased home mortgage.
For those homeowners who simply want different terms on their home mortgage, the streamline option is the most appealing. With the streamline refinance you don’t pull out any equity, but you get a new loan, often through a different lender, that has better terms. These are also the refinance options you’ll want to look at if you’re trying to get the monthly mortgage payment decreased.
Now, every refinance comes with a price tag in the form of closing costs and fees, so if you want to get either of these refinances but you don’t want to pay the closing costs upfront, you may want to look into the no cost refinance. In reality, this isn’t going to be free for you, but you will be able to add the closing costs to the home mortgage and pay them down over time. Bear in mind that this type of refinance often has a higher interest rate than a refinance where you pay the costs up front.
Regardless of your reason for refinancing, you will find a refinance that meets your particular needs. It’s important that you realize that you will have to pay all of the closing costs and fees for any refinance. Be sure to calculate the total cost of your refinance and compare it with the amount you will save before you sign the paperwork. You don’t want to get locked into a loan that will cost you more than it is worth.