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What Is Mortgage Refinancing?

November 30, 2020

mother and daughter looking out a windowA homeowner’s life circumstances can evolve throughout the years of their mortgage, and they may wish to change some terms of the original home loan to reflect those changes. Whether they wish to take advantage of better rates, pay their loan faster, pay off a big chunk of the balance at once to reduce monthly payments, or simply get some extra cash to carry out home improvements, there are several different ways that a home mortgage can be modified to accommodate a homeowner’s current financial situation. So, exactly what is mortgage refinancing?

The Three Types Of Refinance Mortgages

There are three main types of refinance mortgages that homeowners can consider: rate-and-term, cash-out, and cash-in. All of these options involve paying off the original mortgage on the home and replacing it with a new one. The right type will depend on each individual’s circumstances, and the rates vary among the different options.

Rate & Term

The most popular type of mortgage refinance is rate-and-term. With a rate-and-term mortgage refinance, either the mortgage rate, the term of the loan, or both are modified; the rest of the terms in the original loan remain the same.

In this type of refinance, a person might choose to switch from a 30-year fixed-rate mortgage to a 15-year one, and the rate may or may not stay the same. This approach is especially popular at times when mortgage rates are dropping.

Although a homeowner might get some cash out of such a refinance on closing, it generally will not exceed $2,000. Homeowners also have the option of getting a “no cash out” refinance, which allows the closing costs to be added to the loan so that no costs have to be paid out of pocket.

Cash-Out

a family of three laughing in their refinanced mortgage homeA cash-out refinance increases the amount of money that is borrowed. The loan balance on the new mortgage will exceed that of the original mortgage by at least 5 percent. Since the homeowner still only owes the bank the original amount, the additional money is paid out to them in the form of cash at closing.

This approach may also be used in a debt consolidation refinance, with the extra amount of money being directed to the person’s creditors, such as a student loan administrator or credit card company. With a cash-out mortgage, the bank is taking on a greater risk than it would with other types of refinance, which means borrowers will need to meet stricter approval standards. Higher credit scores may be needed, and mortgage lenders typically cap the cash-out amount at $250,000.

Cash-In

A cash-in refinance mortgage is the opposite of a cash-out refinance. It involves a homeowner bringing cash to the closing to pay down the amount of the loan balance that is owed to the bank. This might lead to a shorter loan term, a lower mortgage rate, or both. People who opt for this type of refinance are often seeking a lower mortgage rate by reducing their loan-to-value, or LTV. For example, homeowners who have saved some money to pay down their balance can enjoy a lower refinance mortgage rate by reducing their LTV from 80 to 75 percent. Homeowners might also choose this route to cancel their mortgage insurance premium payments. When a conventional loan is paid down to an 80 percent LTV or lower, the mortgage insurance premiums do not have to be paid.

Application & Documents Needed

application for knowing What Is Mortgage RefinancingA mortgage refinance generally requires the same approval process as a purchase mortgage because the borrower is essentially getting a new loan with new terms. Therefore, some paperwork is required. However, it does tend to be smoother than a new purchase loan because the homeowner already owns the home in question.

Borrowers should collect their credit score and payment history, employment and income history, and information about their cash reserves and retirement assets. Proof of income in the form of pay stubs and W-2s will be needed, along with bank statements to prove assets and some proof of U.S. citizenship or residency status. Information about the original transfer of the home will not be needed.

However, less documentation is typically needed for a refinance mortgage compared to a purchasing mortgage. The home will also have to undergo another appraisal to determine its current market value. Although it is possible to refinance a mortgage numerous times, borrowers may have to wait six months after a cash-out refinance before refinancing again.

Speak To The Experienced Mortgage Brokers

Refinancing your mortgage is a big decision, so it is important to take all the variables into account before committing to ensure that the new loan will offer the expected benefits. If you would like to explore whether a refinance mortgage makes sense in your situation, get in touch with the experienced mortgage brokers at My Lending Pal today to discuss your goals. The experts at My Lending Pal can explain the available options and current market conditions to help you determine your ideal loan.

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MyLendingPal, Inc, NMLS ID #1734346, (www.nmlsconsumeraccess.org); Corporate Office: 5400 Laurel Springs Parkway, Suite 304, Suwanee, GA 30024. Georgia Residential Mortgage Licensee #61544. Principal Loan Originator: Ricky Merchant, NMLS ID: 1517056. Georgia License # 54264. For questions regarding state licensing, please contact (404) 433-8918. Not all products and options are available in all states. Terms are subject to change without notice. Any rates or terms are speculative only and can change without notice.
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MyLendingPal, Inc
MyLendingPal, Inc
5.0
Balachandar Sundaresan
Balachandar Sundaresan
17:30 23 Jun 20
Roger Merchant and his team were very helpful, right from getting a great rate to completing all process on time and being super responsive. Would happily recommend him!!
Dinesh Nair
Dinesh Nair
14:41 30 Jan 20
I would definitely recommend MyLending Pal for all mortgage needs. It all started with a great competitive quote on refinance and excellent service continuing all the way until closing. Priti, Ricky and Roger were a pleasure to work with.
Ramesh Kumar
Ramesh Kumar
02:03 17 Dec 19
I would really recommend Nations First Home Mortgage, if you are looking for the best home mortgage options. I was very much glad to work with this team and they have saved lot of time and money!!
gulshan rai
gulshan rai
03:21 17 Apr 19
I would highly recommend Mr Roger to anyone in the area looking for an amazing lender. He made the mortgage process so easy and effortless. I could tell him and his team were very attentive to all the details that came with applying for a mortgage and were quick to remind me of any deadlines that were approaching.It was super easy to work with Mr Roger.My special thanks to preeti who did an amazing job to get things done in the timely manner. If I had any questions, it was almost like she was waiting at her desk for my phone call to answer the questions immediately. The loans closed on time and without a glitch. I would highly recommend them to anyone
Ajith Nair
Ajith Nair
01:50 13 May 19
We highly recommend Roger for financing mortgage. Roger and his team were excellent through out the process and we had a very smooth purchase. They were always available when we had any questions. It was an amazing experience working with Roger and his team.
Pratul Patwari
Pratul Patwari
13:03 20 Jul 20
Roger Merchant and Priti Vin helped us in buying our first home. They understood our needs and took care of everything for us. They were very good with the communication through the process. They will always be my first choice in future for the mortgage services.
Sujatha Hariharan
Sujatha Hariharan
20:51 26 Jul 20
They were able to find me great rates. Service was quick and communication prompt. The loan process can be daunting as is the document gathering process but this was the easiest and quickest that I have experienced. Highly recommend!
Dinesh Nair
Dinesh Nair
15:53 30 Jul 20
I would definitely recommend MyLending Pal for all mortgage needs. It all started with a great competitive quote on refinance and excellent service continuing all the way until closing. Priti, Ricky and Roger were a pleasure to work with.
Manu Pushpanath
Manu Pushpanath
15:59 29 Jul 20
Great lender to work with. Right from document collection till closing they did it in 2weeks. The fastest closing I heard and get to experience myself. One improvement I suggest is it will be good if the closing attorney can come into the house for completing the closing. Considering current situation it will add a lot of value to the reputation. Thanks Milan and team for a good closing experience.
Sakthi S
Sakthi S
20:46 01 Sep 20
Would definitely recommend Roger and his team.Refinanced for the second time and with roger, I didn’t feel like I refinanced.The process was very smooth and fast.The rates were very competitive and it was amazingworking with Roger and his team.I’d recommend him for sure.
Sunny Patel
Sunny Patel
21:17 01 Sep 20
They were quick, courteous, and professional. They got me an excellent rate and helped make the process smooth. I would recommend using to my friends and family!
Emmitt Rathore
Emmitt Rathore
14:57 22 Dec 20
Roger helped us find an unbeatable rate!His decades of work in the industry made it easy for us to complete many processes with the lender, and helped us close on time!I will definitely be passing the good word around and recommending family and friends to him.I look forward to our next real estate transaction with them.
M Alamoti
M Alamoti
01:02 11 Jan 21
I had the experience of using their service. They know what they are doing. They are very honest, professional and caring. I have no doubt and hesitation to recommend them to anyone who is looking to purchase a home. I am very pleased for their service.
kondal rao
kondal rao
05:36 09 Apr 21
Roger and Team were very helpful. Proactive and honest service. My closing ended in no time. I made the right choice of choosing this team. Worth trying with this Team
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