Refinancing can save you money, but the downside is that you have to restart amortization. Once again you are paying mostly interest at the beginning of your loan. But there are ways you can get around this, keeping your original pay off period and saving on interest charges.
Short-Term Refinance Loans
Lenders offer a variety of terms – 30, 25, 20, or 15 years. By refinancing for a shorter term you can closely match your original pay off date. Unfortunately, lenders don’t fraction year terms – such as 22 years and 4 months.
However, by choosing a shorter term, you may qualify for even lower rates. You can also pay off your loan sooner, further increasing your interest savings.
Self Increasing Your Payment On Refinance Loans
Another option is to refinance your mortgage for 30 years. Then make an additional principal payment each month to pay off your loan at the original date. You can use a mortgage calculator to determine this amount. You can also make one extra payment a year to reach the same results.
With this approach, you have control over your payments. For some this can be seen as a negative, since there isn’t the required payment. You can also pay off your loan earlier by increasing your principal payment even more.
Pre-pay “Cash Out” Refinance
The third option is to take out the original loan amount. Then prepay the principal amount to what you currently were at with your original loan. That way you will pay off your loan on your original terms.
This option gives you more control over the pay off date. But, you may be charged a higher rate for cashing out part of your equity.
Selecting the Right Refinance Option
Each approach has its own advantages and disadvantages. Mostly it comes down to a matter of preference and what works for your budget. However, do ask for rate quotes to see the difference in interest costs. Not only will you have a better understanding of the numbers involved, but you will also find the best APR.
By: Carrie Reeder
Posts Tagged ‘Mortgage Refinance’
Refi Home Mortgage Loans – Different Types of Mortgage Refinance Loans
January 13th, 2010
With today’s lenders, you have more refinancing options than ever before. So whether you are looking to reduce your rates or lower your monthly payments, you can find financing that is right for you.
Lenders also let you compare loan quotes online without hurting your credit score. So with real numbers, you can determine which is the best lender and loan for you. You take the guesswork out of the refinancing process, knowing how much you can save.
Stability Of A Fixed Rate Mortgage
Refinancing for a fixed rate mortgage can lower your rates and give you peace of mind. By setting your mortgage rate today, you know exactly how much your interest will cost and how long your loan will last.
Fixed rate mortgages also allow you to buy down the rate, saving you thousands if you keep the mortgage for several years. You can also extend the loan period to reduce monthly payment amounts.
Betting On Lower Rates With An Adjustable Rate Mortgage
Refinancing with an adjustable rate mortgage will qualify you for some especially low rates a year or more. With these introductory offers, you can save hundreds a month.
There is the chance that rates will increase, along with your monthly payments. Depending on your caps, you may also see your mortgage lengthen due to high rates. But if you aren’t planning to keep your loan or house for too long, you may find the savings worth the risk.
Cashing Out Your Equity With A Refi
Cashing out part of your equity during a refi saves you money on application fees and higher rates with a separate home equity loan. When you pull out your equity, you can still select fixed or adjustable rates. You also have the options of extending or shortening your loan terms.
Creative Terms For Unique Situations
Interest only loans and similar creative loan terms work for those in unique situations. For instance, if you are planning to move in a year, refinancing with an interest only loan can cut your mortgage payments by hundreds of dollars. And by selling before the loan payments jump, you don’t have to worry about high payments.
By: L. Sampson
Different Types of Mortgage Refinancing Loans
December 29th, 2009
There are several types of mortgage refinancing loans available in the market today. With these different types of getting your mortgage refinanced, you can make the choices based on your circumstances and your needs. These are mostly taken out to make some renovations, pay off debts or use the proceeds for your child’s college education. Regardless of where you will use the proceeds of the refinancing loan, it would be smart to know the different types in order to make an informed decision.
The different types are; fixed rate, variable rate, interest only, balloon type, home equity, and fully amortizing mortgage refinance loan.
Fixed rate type is one where the interest rate is locked to a fix amount and will stay for the duration of the loan. In other words, it would simply mean that you are going pay at a constant rate of interest for the whole life of whatever balance you have.
Variable rates are where the interest rates fluctuate or changes with certain predetermine index. This is not for the faintest of heart as this can change anytime as the market changes its directions. This type of refinancing normally gives the borrower and introductory low rate which is usually between 3 to 5 years then the real variable rate starts to kick in.
Interest only type is self explanatory in the sense that you are being ask to pay only the interest mostly for a period of time. After the specified time has lapse, you will start paying the principal.
Fully amortization is one where your monthly payments are a combination of all the interest charges and additional payments towards the balance. This is very good option as it will reduce your balance every time you make your payments, thus paying off the mortgage loan will be faster.
The home equity type of refinance is where you borrow against your equity on the house and use it as a collateral or security for your borrowings. You then be able to get the money in the form of a revolving credit line or cash.
So now that you know and understand the different types of mortgage refinancing loans, you are not going blindly into applying to refinance your mortgage loan. Learning, understanding and knowing what the types are can really help you make an informed decision when the time comes to refinance your mortgage loan.
By: Julie Viola