What is refinancing?
Refinancing is a strategy lenders and borrowers use to replace an existing mortgage with a new one. Borrowers often refinance to change their original mortgage’s interest rate or loan terms.
How does refinancing work?
When you refinance your home, you’ll apply in a similar way to when you applied to purchase your home. In many ways, the process is like a less strenuous version of getting a purchase mortgage. Here’s generally how it works:
- The lender will do a credit check.
- You’ll turn in any required financial documentation.
- You’ll pay for a home appraisal.
- The loan will go through the mortgage underwriting process.
- The process will be completed in an average of 30 to 45 days.
Types of mortgage refinance
There are many types of refinancing so consider each within the context of your unique financial situation. Your goal might be to adopt a shorter loan term, or maybe your focus is to lower monthly payments. Here’s a breakdown of each.
Equity Take Out(ETO):
When you do a ETO, you use your home equity to withdraw cash to spend. This increases your mortgage debt but gives you money that you can invest or use to fund a goal, like a home improvement project.
Debit Consolidation:
Like cash-out refinances, debt consolidation refinances give you cash. But there’s one key difference: You use the cash from the equity you’ve built in your home to repay other non-mortgage debt, like credit card balances or loans.
Rate & Term Refinance:
A rate-and-term refinance changes either the loan’s interest rate, the loan’s term or both.
Reverse Mortgage:
You might be eligible for a reverse mortgage if you’re a homeowner aged 65 or older. This type of mortgage allows you to withdraw your home’s equity and receive monthly payments from your lender. You can use these funds as retirement income, to pay medical bills or for any other goal.