Home Refinancing Options by Alan Lim
Whether you are looking into reducing your interest rates, lowering your monthly payments or drawing equity into your home, home refinancing may give you the best edge to having that financial breathing space and the extra savings that you want. With that said, it is important that you know your options as far as home refinancing is concerned. Note that there are hundreds of mortgage options that are widely available, all of which vary in terms of fees, rates, payment schemes and features.
If you are interested in refinancing your home, you usually need to obtain a new first loan which provides more favorable terms and covers the rest of your mortgage balance. This is where you choose among the options available for you. Here are some of the most common types of home mortgage refinance options that you can choose from:
Adjustable Rate Mortgage
As is suggested by its name, ARMs offer fluctuating interest rates depending on market conditions, the lender and on the terms agreed upon. If you are stuck with a relatively high fixed interest rate in your existing mortgage, you can opt for home refinancing through ARM. However, it is very important that you consider this option very carefully and choose both your lender and your new mortgage terms. Adjustable rate mortgages are usually offered at lower rates, but in return, you will need to cope with the possibility of interest rate increasing anytime.
Fixed Rate Mortgage
If your existing mortgage has an adjustable rate, you may find it attractive to get home refinancing on a fixed rate loan. This type of loan sets your interest rate to be fixed for a specific period of time. This way, you are able to manage your finances more effectively with fixed monthly payments. Fixed rate mortgages are usually less flexible and offer lesser features. This may mean that you can not redraw on additional funds nor make extra payments as you wish.
Home Equity Loan or Cash-Out Refinance
This type of home refinancing basically involves getting yourself a new and much larger-value loan. This type of refinancing usually gets you some extra cash to consolidate and pay all your other debts, or finance home improvement, education, and so on. Cash-out refinances are usually set at a maximum of 90% of your home's total worth. Some lenders may offer more, but you may be faced with higher fees and possibly higher risks. Also, as you borrow against your home, you reduce the equity that you already have built up and you may have to go through some extra tax consequences. Care must also be taken with home equity mortgages as many borrowers tend to increase their debt and spend away. Deciding on refinancing and which particular type to take should depend on your circumstances: the length you will intend to stay in your home, your financial goals, the interest rate trend, and so on. Home refinancing should be a serious decision, make sure that you have the right goals in mind and are refinancing for the right reasons.