Refinancing Mortgage Loan

Majority of the loan applications that the lender receives are for refinancing existing mortgage. Borrower may go for refinancing either for better rate or term or a quick cash out en cashing his equity on the owned property. Mortgage Refinance can be broadly classified as Rate and Term Refinance or Cash-out Refinance.

Rate and Term Refinance – Borrower might be paying his current mortgage payment at much higher rate than what been offered in market. To take advantage of lower rate borrower might refinance his mortgage with same lender or with altogether new lender. This would not only bring down his monthly payment but considerably reduces his overall interest on incurred mortgage debt.

In addition to rate borrower might also go to reduce his term for existing mortgage. His monthly income would have increased and now would afford higher payment and hence wants to lower the term to get rid of his mortgage early and save on some interest. This might increase his monthly payment but with reduced term he closes his mortgage early saving on overall interest. Reverse way borrower may also increase term to reduce monthly mortgage payment.

Cash-out Refinance – Borrower might be having considerable equity on his owned house say on $100 house he might be only having outstanding debt of $50. The equity borrower has here is almost 50% and can always en cash as and when required. This can be done through Cash-out refinance wherein borrower goes for higher loan value, paysoff his existing mortgage and brings home the difference as a cash out. On above given example borrower may go for $80 new loan, pays off his $50 outstanding and brings home difference as cash out arrived after adjusting settlement charges. Cash out as availed can be used for house renovation, education, medical or any other emergency. Lender is least bother about the reason for cash out as long as borrower has the equity on his property and that he can afford the higher mortgage payment on the new loan.

Borrower might also go for Cash-out Refinance to consolidate his multiple mortgage accounts on the same property or pay off his other revolving or installment accounts.


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