Refinancing: Different Types

Refinancing different types of refinance mortgage loans are available depending on your current needs. These can be fixed rate mortgages, adjustable rate, or a cash-out refinance where you can get money to use from your built-up home equity. You should carefully consider these different types of refinance options, before you agree to the lender’s loan terms.

Fixed Rate Mortgage Loan Benefits. A fixed rate mortgage loan is the most popular type of refinance. Many borrowers choose this loan because their existing mortgage has an adjustable rate. By refinancing with a fixed rate, you no longer have to worry that your rate might go up in the future. Another reason you might want to refinance is that rates have come down significantly since you took out your original mortgage. Since rates are now lower, you may want to consider shortening your loan term if you can afford the additional payment amount. This will reduce the finance charges you pay over the term of your loan.

Adjustable Rate Mortgage Benefits. An adjustable rate mortgage, or ARM, may be a better type of refinance for you if the loan you have now has a high interest rate compared to the current ARM rate. An ARM of course carries the adjustment factor, so it can rise or fall depending on the instrument used by the lender to determine your mortgage rate. If you are only going to be in the home for a short amount of time, the costs associated with the refinance may not be worth paying.

Cash-out Refinance Benefits. Of the different types of refinances available, the cash-out may be the least understood. This type of refinance allows you to cash out the equity in your home, to be used as you see fit. Use the money for home improvement, a child’s college tuition, or to buy a boat, it does not matter. Your new mortgage amount after the cash-out refinance will be your old mortgage loan balance plus the amount of additional cash you receive.

Make sure you compare the fees associated with this type of loan as compared to the fixed rate or adjustable rate refinance options. Also take into consideration that by increasing your loan amount, you are decreasing the equity amount in your home. Consider consulting a tax professional before you refinance a mortgage, if you need clarification on the tax particulars.