Refinancing Your Home Options

Banks Editorial Team · May 21, 2018

It’s important to look into all refinancing your home options in order to save money. Home refinancing means exchanging your existing mortgage for a new one. Unlike a second mortgage, requires you to make only one monthly payment.
Some reasons to refinance your home may be reducing your loan payments or reducing the length of your loan, switching from an ARM to a fix-rate mortgage, or using the equity in your home to borrow money. This means you can save money by refinancing your home.

Refinancing your Home Options

When you refinance your home you are basically exchanging your existing mortgage for a new one. Your lender pays off your original mortgage, and you will be making a new monthly payment based on the terms of your refinancing. Whatever your reason, there are both conventional and government-backed loans out there. Though the former can be harder to qualify for than the other. Finally, there are multiple options out there in terms of refinancing lenders.

In June of this year, the Fed announced that it was raising interest rates. As a homeowner, with interest rates increasing you may be running out of time to take advantage of home refinancing. Of course, considering that refinancing your home is a risky prospect, you want to know if refinancing is right for you. That is why in this article we will be looking at what it means to refinance your home options. In the process, we go over some reasons why you might decide on pursuing refinancing. Finally, we will go over some refinancing your home options out there that you might be interested in pursuing.

Refinancing or Second Mortgage?

So let’s start looking into refinancing your home options. Home refinancing and second mortgages are two types of lending products based on home equity that are similar enough to each other that they might be confusing. Even the steps in the process of getting a mortgage and refinancing are similar to one another. But a second mortgage differs from home refinancing in that it is literally a second mortgage.

In practical terms, getting a second mortgage means you will be making a second monthly payment. If you choose to refinance your original mortgage is paid off. To be clear: you are exchanging your existing mortgage for a new one. Your lender will pay off your original mortgage. You will be making a second, monthly payment that is preferably lower than your original, monthly mortgage payment.

When thinking about why refinancing your home, options to do so are numerous. With interest rates increasing it may be your last chance to refinance your mortgage. Securing refinancing with lower interest rates than your original mortgage would leave you with a lower monthly payment. Another reason to consider refinancing is if your credit score has improved since you first acquired your mortgage. A higher credit score would also mean possible lower rates on your monthly payment. Or maybe you’re interested in shortening the length of your loan? With refinancing you can reduce the time it takes to pay back your lender. Or perhaps your original mortgage is an adjustable rate mortgage (ARM)? With refinancing you can switch from an ARM to a financially safer fixed-rate mortgage. Or maybe you find yourself needing to borrow little cash? With refinancing you can use the equity in your home to get the money that you need. In any case, finding the best mortgage rate will definitely help.

Refinancing Options

If you want to refinance your home there are a few available options in terms of loans, rates and lenders.

There are two kinds of refinancing loans out there: Conventional and Government-Backed.

  • Mortgages are conventional if banks and other private lenders issue them. These mortgages have more stringent underwriting requirements. In practical terms, they can be more difficult to actually be approved for.
  • The United States’ Federal Government backs the second type of refinance loan, and they can be broken down into three sub-types.
    • FHA loans are issued by the Federal Housing Authority and similar to conventional loans (in that they are issued by banks and private lenders).
    • The second sub-type of loan is VA loans issued by the Department of Veterans Affairs. These loans help purchase homes with very little down payment or none at all. However, these loans are intended for service members, veterans, and surviving spouses.
    • Finally, there are loans made by the Department of Agriculture to help purchase homes in rural areas.

On the subject of interest rates, there are two main types: Fixed and adjustable. Of the two, the fixed rate is considered to be the more secure mortgage type.

  • Fixed rate mortgages mean that you will pay a specified interest rate for the entire term of the loan.
  • An adjustable rate means that for the entirety of your loan you will be paying an interest rate that changes according to some specified benchmark rate.

Now if you are refinancing your home options are also available in terms of lenders. Ask yourself if your current lender is right for you. Even though you may be tempted to go through your mortgage lender out of convenience, you should really shop around when refinancing. According to a report by U.S. News and World Report, Bank of America offers refinancing for 5% equity. The caveat to that, compared to other lenders, the interest rates on their mortgage products are not very low. Another option is CitiMortgage that offers a 40-year fixed-rate loan. For comparison, the standard maximum term for fixed-rate refinancing is 30 years. While that may be attractive, CitiMortgage also requires 10.1% equity (at the least). Or for those in rural areas, PennyMac might be attractive with its lower than average APR for 15-year fixed-rate refinancing. Though according to the data the APR for their ARM is above average. In the end, in order to get the best refinancing, you need to research and choose a lender that is right for you.

 

 

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