About Refinancing: 10 Facts

Refinancing your home can be a good idea in some instances, especially if a few things, including these 10 facts about refinancing, are kept in mind. 

1. With a home loan, no matter which type of plan is chosen, homeowners should keep in mind that the house is still being used for collateral. The only difference is now that the money that was received from refinancing will go to pay off the first mortgage, either completely or at least a good portion of it.
2. Some people often take out what is called a “Cash out Refinance Home Loan.” When this occurs, the amount of money received from the refinancing is usually more than what is needed to pay off the original mortgage. The most common use for this type of refinancing loan is to pay off outstanding debts, leaving one with only one loan to repay.
3. Another of the ten facts about refinancing to keep in mind is a plan called “Balloon Mortgage refinancing.” Monthly payments on this type of loan are usually lower, because you are paying primarily interest for a while. The principal is then paid in one big amount at the end of the loan.
4. The most common type of refinancing is a simple home equity loan. In this situation, the amount of money that can be borrowed is based on the home’s value.
5. When considering the ten facts about refinancing, you may be interested in learning about a home equity line of credit. When you choose this option, you can actually borrow more than your house’s value.
6. 10 facts about refinancing also include learning about a bridging loan. People sometimes use this option to allow them to purchase or close the deal on a new home while still waiting for their old home to sell.
7. No list featuring ten facts about refinancing would be complete without talking about loan modification. A loan modification actually changes all or part of the terms of an existing mortgage loan. From there, the loan is reinstated, usually at a lower monthly amount.
8. Now, let’s talk about interest rates as they apply to ten facts about refinancing. Interest rates, no matter what they are set for, are decided by those who run Federal Reserve Banks. Fluctuations occur often, which results in the prime interest rate, as it is referred to, going either up or down.
9. Financial institutions use the prime rate to determine how much interest to charge a person. Some will lend at below prime rate, others will charge more, and still others will use the current prime rate as their interest rate.
10. Your credit score determines whether or not you are eligible for lower interest rates. That’s why it’s a good idea before you start refinancing procedures to find out what your credit score is.

Resource:

Loan Modification Frequently Asked Questions