Refinancing

Homeowners may want to refinance their existing mortgage for various reasons. One may refinance if rates are lower than their current note in order to save money and/or if the homeowner wants to borrow additional money against the equity in their home. If a borrower has an Adjustable Rate Mortgage (ARM) that is ready to adjust or a second mortgage they want to consolidate a refinance can be the right option. Sometimes a refinance is needed if the ownership of the house is being transferred or if someone on the note needs to be taken off.

If one is just lowering the rate and/or amortization period of their existing loan it is categorized a rate and term refinance. If instead the homeowner is pulling additional money from their home for renovations or other investments, it is categorized a cash out refinance. A cash out refinance can be a bit more expensive than a rate and term depending upon the LTV (loan to value- ie the % of the value of the home the loan represents) though the difference in terms is small.

For the most part, rate and term refinances are similar for a purchase and in both cases if one borrows more than 80% of the value of the home they will pay PMI (mortgage insurance).