There are certain moments in life we deem milestones. There are some milestones we’re antsy to achieve and ones we prepare for great spans of time. Buying a home is one of those milestones.
By now, you know that putting up a mortgage to take out a loan helps alleviate the financial burden of financing a home. When you reach a point where you need to make a change to the terms of the mortgage for the loan, be it a change in amount (more or less) or time, you must refinance the loan. When you refinance a home loan, you essentially replace your current mortgage with a new one that has new terms and new rates.
There are three ways to refinance a mortgage: rate-and-term, cash-out and cash-in. Refinance rates vary among the three, and there is usually one that best suits an individual’s refinancing capacity and needs.
Rate and Term Refinance
A rate-and-term refinance adjusts only the length and/or rate of the current mortgage. The borrower can change, shorten, or lengthen the amount of time for which he has to pay back the loan, or he can amend the rate of the loan he’s paying back, depending on the state of his mortgage. If any cash is given in closing in this type of loan, it is less than $2,000.
Cash Out Refinance
A cash-out refinance rewards the borrower with the excess balance on his amount due to the bank for the loan. If the value of the borrower’s mortgage for his loan increases and he will pay more than he owes by the end of his loan term, he might choose to refinance for the cash-out option. It’s like paying more than you owe to taxes and getting more money back in the spring. The cash-out option requires a strict approval process and is often limited to $250,000 cash-out.
Cash In Refinance
Cash-in is precisely the opposite. The borrower will pay a cash amount in order to adjust the rate at which he is paying or the time that he has to pay back the loan. This option is popular among homeowners who see mortgage rate opportunities they want to capitalize on. Although cash is given up front, the borrower likely saves money down the road by paying at a lower rate against the value of the mortgage.
It can be difficult to determine which refinancing option is best for you, so we encourage you to get in touch with a Nova Home Loans team member to find out which approach best suits your financing needs!