A Refinance loan means replacing an existing mortgage loan or debt with another loan under different and better interest term and rate. It is using a new loan to pay off an existing mortgage, high-rate credit cards or some other important financial commitment. With refinance loan, you are replacing your current mortgage with a new loan to lower your monthly payments, pay off debt or use for other financial goals.
Most banks and lenders will require borrowers to maintain their original mortgage for at least twelve months before they are able to refinance.
REASONS FOR REFINANCING
A refinance loan may be taken for some reasons which include
- Pay off mortgage faster
- Remove Private Mortgage Insurance (PMI)
- Avoid Balloon Payments
- To reduce the monthly repayment amount
The following are needed to enable he borrower get a refinance loan
- Information about your income
- Information about your assets
- Debt information
- Good credit history
- The lender will make an appraisal of your home
- Survey of the property boundaries
- Flood determination
- Title search and title insurance
TYPES OF REFINANCING
There are two major types of refinancing which are Rate-and-term refinancing and Cash-out refinancing.
Rate-and-term refinancing: This type of refinancing enables you refinance your remaining balance for a lower interest rate and a term(number of years it will take to repay the loan) you can afford
Cash-out refinancing: This type of refinancing enables you take a new mortgage for more than what you owed. You take the difference in cash to pay off existing debt.
- Low interest rates
- Fixed-rate options
- Convert variable loan rate to fixed rate
- Reduce monthly payments
- Obtain money for large purchases like car
- Reduce credit card debt
- Improved loan period
- Allows you unlock the equity in your home
- Allows you merge your loans