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Types of Refinancing Loans

Types of Refinancing Loans

Chances are your current finance or mortgage company doesn’t care if you save on your house payments. They are much happier receiving your payments each month without you recognizing how much money you can save by refinancing.

They don’t want you to know that you can save hundreds or thousands of dollars each year, or potentially tens of thousands of dollars over the life of a loan through refinancing.

Now it’s time for you to make a move. With interest rates still low, you can seek out the refinancing you deserve.

Where do you start? It begins by understanding the types of refinancing loans that are available to you.

Rate and Term Refinancing

This is the most popular form of refinancing. In this process, the original loan is paid off, and then immediately replaced with a new loan that includes a different term and interest rate.

This type of refinancing can help lower payments, pay off a property quicker, or pull extra money out of the home for other purposes.

Rate and term refinancing may be used to convert a variable-rate loan into a fixed-rate loan. This type of refinancing can also shorten a loan period from 30 to 15 years, or even vice-versa.

Cash Out Refinancing

This can be a solid option for those who need to pull out equity (money) they have in their home for a variety of reasons.

The loan amount will be based on several different factors including your credit rating, and the difference between what you owe on your home versus its value. Even though cash out refinancing will increase your total debt, it can often be offset by low interest rates.

Government Backed Refinancing

There are several different government-backed refinancing opportunities that are available to you depending on your needs.

One such refinancing option is The FHA Streamline Program, which is most likely the fastest and easiest way to refinance an FHA loan.

This type of refinancing can be done without having to verify your income (if you have made on-time mortgage payments over the last 12 months). And if you’ve paid off enough of your original loan balance, you might not even be required to provide a property appraisal.

HELOC Refinancing

HELOC stands for Home Equity Line of Credit and is similar to a Home Equity Loan. Both types of refinancing use the equity available in a home as collateral to secure the loan. HELOCs are often referred to as “second mortgages”.

Other Factors Affecting Refinancing

Keep in mind your refinancing will not just be affected by the kind of refinance you choose, but by a variety of other factors as well. These other determinations include:

  • The Loan Amount – The first factor that will affect your payments will be the total loan amount that is being refinanced.
  • Creditworthiness – Your creditworthiness can be impacted by your employment situation, credit rating, or debt-to-loan ratio.
  • Interest Rate – The interest rate you pay will largely be based on your credit rating. However, it can also be impacted by the type of refinancing you choose, and whether or not it’s a government-backed loan or from a secondary lender. Private lenders will often charge higher interest rates to reflect the greater risks they may be taking.
  • Length of Loan – One of the easiest ways to reduce payments when refinancing is to extend the time you have to repay the loan. Keep in mind, this will make the total cost of the loan higher, but your monthly payments smaller.

Using an online calculator can help you see the impact that some of these factors might have on your payment schedule.

By changing the interest rate, loan amount, or loan term, you can see the impact not only on your monthly payments, but on the total cost of your refinance as well.

The Power of Comparing

Knowing the various types of refinance options that are available can be very useful in deciding the path that’s best for you. It’s important to compare these options because even a seemingly small difference in interest rates can make a significant difference in what you pay.

Don’t wait for an invitation from your current company to refinance at a lower rate. Be proactive and research to find the option that seems best suited for your individual needs and take advantage of the current market.


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