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Rate and Term Refinance

Rate and Term Refinance - A rate and term refinance is when a borrower refinances to lower the interest rate and/or term of their current mortgage.

Generally speaking, a rate and term refinance poses less risk to the lender so may be easier to qualify for than a cash out refinance.

Lenders sometimes give borrowers lower rates when they only do rate and term refinance. Cash-out refinances are considered riskier loans so some lenders add onto the base rate to compensate for this risk.

Sometimes it is possible to do a rate and term refinance on your first mortgage and then a cash out loan on the second mortgage. These can be done at the same time. Doing a rate and term refinance on the first will get you a lower rate.

Rate and term refinances can also include paying property taxes that are due without being classified as a cash out transaction.

Usually people do a rate and term refinance because they want to lower their monthly mortgage payments. Having a lower interest rate, and spreading your payments out over a longer period of time, equates to paying less each month.

Most lenders will allow a maximum of $2,000 to the borrower when doing a rate and term refinance. Anything over that $2,000 number, and it is considered a cash-out refinance.

A rate and term refinance would not include a debt consolidation refinance or a cash out refinance.

Mortgage Refinance - A mortgage refinance is done by applying and qualifying for a new mortgage loan and then using the proceeds from the new home loan to pay off the old home mortgage loan. You can refinance for many reasons: to take cash out of the equity in your home, to lower your interest rate, to lower your mortgage payment, to simply switch mortgage companies because you are not pleased with your current mortgage company, to consolidate debt, to pay off high rate credit cards, to lower the term of your mortgage, to increase the term of your mortgage, to combine a first and a second mortgage, to switch from a fixed rate to an adjustable rate, or to switch from an adjustable rate to a fixed rate, and for many, many other reasons. Consult with your mortgage professional or mortgage broker to find out what your best options are.

When refinancing in order to payoff credit card debt, keep in mind that credit cards are unsecured debts.
When you refinance, you are transfering unsecure debt into debt secured by your home. Make sure you are financially savvy enough not to continue the patterns that resulted in the credit card debt or your could be putting your home at risk.

One of the most popular reasons for doing a mortgage refinance would be to obtain funds for improvements on the home. Since the money spendt on such improvements often directly increases the value of the home, it is a very sensible way to obtain such funds. Some of the most popular improvements include new kitchens and bathrooms, new windows, landscaping and swimming pools.

Refinancing - Paying off one loan by obtaining another; refinancing is generally done to secure better loan terms (like a lower interest rate).

When refinancing it is wise to contact your current lender first to set a benchmark of what you can be approved for and at what rate and terms.

When refinancing keep in mind that certain closing costs may be tax deductible. When refinancing and consolidating credit card debt through the refinance, also remember that mortgage interest is tax deductible while your credit card interest is not. So therefore not only can you lower your total monthly expenses by consolidating debt, but you may be able to help increase your write-offs on your end of the year tax forms and increase the amount of money you get back from the IRS.

In a low interest rate climate, many homeowners also refinance for a shorter loan term, so that they can pay off the mortgage on their homes sooner. If one can get a lower interest rate by refinancing, he can often refinance a 30 year mortgage with a 15 year loan with little to no increase to his monthly payment.

Remember, your situation is unique. Don’t be tricked into thinking that one particular type of refinance loan is a must have just because your friend or coworker just got “a great rate” on their latest refinance or because it was the loan your parent’s had.

Refinancing to make home improvements is one of the best ways to build value and equity in your home. Certain additions, particularly decks, kitchens and garages, as well as a fresh coat of paint, can really raise your property's value and of course improve your quality of life. Some of these improvements can return up to 200% on the amount you borrow to invest in them, however if you do the work yourself you can create even more value, which helps your house stand out from the crowd when it finally time to sell.

Having your loan to value ratio change is often a good reason to refinance your mortgage. If the equity in your home has grown by a decent amount, a lender may consider your risk level to be lower. That can result in being able to have a lower interest rate.

Refinancing used to mean lowering your rate by two points. That simply is not true anymore. You can save money just by removing mortgage insurance or consolidating debt even at the same rate. If you are on an FHA loan you must lower your rate by at least a half a percent from fixed to fixed and by two points if you are going from fixed to adjustable.

Refinancing your mortgage has many benefits. Lowering your payment and interest rate are the obvious first reasons. However, you can also refinance for cash out to consolidate other bills and credit cards into one easy monthly payment that could save you hundreds of dollars each month. You can also use the cash out to purchase cars, home improvements, educational financing etc. With interest rates near record lows many homeowners have taken advantage of refinancing.


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