Learn about the types of home loan refinancing available to help you decide which one is right for you.
Mortgage refinancing is basically the process of paying off an existing loan by taking on a new loan and using the same property as security. There are several types of mortgage refinancing you can choose from depending on what suits your situation best.
Reasons to Refinance Mortgage Rates
Often people take on mortgage refinancing to reduce their mortgage expenses during the times when interest rates have dropped, or to switch from an adjustable interest rate loan to a fixed rate loan which is done during times when interest rates are going up. Whatever the reason may be, it would be best to know what refinancing mortgage options are available to you.
Types of Mortgage Refinancing
As mentioned, a fixed rate mortgage puts your interest rate into a fixed amount according to the current market conditions during the entire loan period. This type of mortgage refinancing is best for those who do not wish constant changes in the loan interest rate. By getting a fixed rate mortgage, you would be able to plan your monthly payments accurately thus you will have the peace of mind throughout the loan period.
The opposite of the fixed rate mortgage is the adjustable rate mortgage, better known as ARM. In this type of loan, the interest rate changes constantly based on a certain economic index the loan is linked to. This option is good if you are facing a declining interest rate period in the mortgages market. Usually, the initial rate in ARM is lower than the fixed mortgages rate but note that since it is adjustable, the interest rate could go up from time to time during the duration of the loan, depending once again on the market conditions. Consumers should weigh the pros and cons of fixed rate and adjustable rate mortgage before deciding which one is better for them.
Another refinance mortgage option is the home equity loan which is somewhat similar to the fixed rate mortgage. However, this one actually allows you to gain access to your home equity and get cash for whatever purpose it may serve while increasing the debt-to-property percentage. Normally, the annual percentage rate in the home equity loan is fixed and very attractive. This type of loan is usually used to finance major expenses such as home repairs, medical bills or even college education. Bear in mind that if you are considering this type of loan, make sure that you have good credit history because this is one of the major factors to qualify.
A home line of credit is also another refinance mortgage option. This is similar to home equity loan but it is in a form of credit line which allows you to cash in your mortgage balance up to the original borrowed amount like that of a credit card. Just like the home equity loan, this type of mortgage refinancing is best for home-improvement purposes and other major expenses.