Posted on: 21 August 2020
One of the benefits of owning a home is the equity you build in it over time. The equity you have is the part of the home you own, while your lender owns the rest of the home's value. When you have a home loan on your house, you always have the option of refinancing the loan. You can do this to use the equity in your home for another purpose or to save money. Here is an explanation of the two types of mortgage refinancing services you can utilize if you have a home loan.
1. Standard Mortgage Refinancing
The first type of mortgage refinancing involves replacing your current loan with an existing loan equal to your original mortgage. People choose to refinance with this option for several reasons.
One reason is to get a lower-interest rate on the loan. Suppose you have a 5% interest rate on your home and could get a 4% rate by refinancing. If you went through with it, you could save a lot of money on your loan and payments.
People also refinance to eliminate the private mortgage insurance (PMI) they have. If you pay PMI, one of the best ways to eliminate it is by refinancing when you pay off enough of your balance. People refinance for other reasons, too, but these are two of the most popular explanations.
2. Cash-Out Mortgage Refinancing
The other option you have is a cash-out mortgage refinance. This option allows you to refinance with a new loan that is larger than your existing loan. It is larger because you borrow more money through the refinance, and you can use this money any way you wish.
For example, if you want to renovate your home, you could use a cash-out mortgage refinance to obtain the cash you need to pay for the remodeling project. People also choose a cash-out refinance to obtain money for vacations or to pay off debt.
If you use this refinancing method, you can typically borrow up to 80% to 85% of the home's value, but you cannot usually borrow 100% of the home's value. Therefore, you must make sure you have enough equity before applying for a cash-out refinance loan.
After seeing the two main types of refinancing services, would you like to proceed with applying for one? If so, which option do you prefer? If you have questions about mortgage refinancing services, talk to a lender to learn more about your choices.Share