Types Of Mortgage Refinance Loans

Types Of Mortgage Refinance Loans



Types of​ Mortgage Refinance Loans
Technically,​ you​ can take out any kind of​ loan and use your loan proceeds to​ pay off your mortgage .​
Viewed this way,​ any type of​ loan can be a​ mortgage refinance loan .​
However,​ some have restrictions (i.e .​
some loans do not offer a​ big enough credit for paying off a​ mortgage) so they don’t make good refinance loans.
This article is​ about the​ loans you​ can use for refinancing your mortgage .​
Since these are loans that banks have specifically designed for paying off mortgages,​ they are also known as​ the​ common types of​ mortgage refinance loans that are available in​ the​ market.
According to​ Variability of​ Interest Rate
Fixed-rate mortgage refinance loan: This type of​ home refinance loan is​ one where the​ interest rate is​ locked-in to​ a​ fixed amount for the​ whole duration of​ the​ loan .​
Simply put,​ the​ home refinance loan will be kept at​ a​ constant interest rate for the​ whole life of​ the​ balance.
Variable-rate mortgage refinance loan: This type of​ home refinance loan is​ one where the​ interest rate varies with a​ certain,​ predetermined index .​
the​ interest rate,​ in​ this case can be equivalent to​ the​ index or​ greater than the​ index by a​ fixed margin .​
in​ this type of​ mortgage refinance loan,​ there is​ usually an​ introductory rate period where the​ interest rate is​ fixed for a​ few years (3 and 5 years are common) at​ a​ very low rate .​
After this introductory period has passed,​ the​ rate becomes a​ true variable rate – subject to​ the​ whims of​ the​ market .​
However,​ there’s usually a​ cap or​ interest rate ceiling to​ protect the​ consumers from excessive index rate increases.
According to​ Payment Terms
Interest-only mortgage refinance loan: This type of​ mortgage refinance is​ one where you​ will be asked to​ pay only the​ interest for a​ certain period of​ time .​
After the​ set interest-only payment period has passed,​ you​ will have to​ start making payments towards the​ principal.
Balloon-type mortgage refinance loan: This type of​ refinance loan is​ one with an​ initially low,​ fixed interest rate (the actual period varies from lender to​ lender but this period doesn’t usually exceed 10 years) .​
After the​ period for the​ low interest has passed,​ however,​ full payment is​ required on​ loan balance.
Fully-amortizing mortgage refinance loan: This type of​ refinancing loan is​ one where monthly payments are a​ combination of​ interest charges and payments towards the​ balance .​
This type of​ loan is​ ideal for people who wish to​ add to​ their equity as​ well as​ reduce the​ balance with every payment.
Home equity mortgage refinance loan: This type of​ loan is​ one where you​ actually apply for a​ loan using the​ equity you​ have stored in​ your home as​ your security for the​ loan .​
in​ this case,​ you​ give up your equity for money which you​ can get as​ outright cash or​ as​ a​ revolving credit line .​
Such a​ loan usually has a​ very good interest rate .​
However,​ this type of​ loan is​ ideal for mortgage refinancing ONLY if​ you​ have enough equity in​ your home to​ pay off your original mortgage lender .​
This can happen if​ your home has appreciated considerably .​
If you​ don’t have enough equity to​ pay off your original lender,​ you​ will only be taking on​ a​ second mortgage,​ not a​ refinancing loan.




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