Refinance Mortgage Loan

Cash out Refinance: Cash-out refinancing refers to a procedure wherein the amount of your new loan exceeds your current Mortgage Refinancing Loan debt; the difference goes into your pocket to fund other expenses such as renovation work, college education, paying credit card debts, car loans etc. But you can only borrow amount that is less than 80% of the value of your property.

No Cash out Refinance: This refers to a process wherein the amount you borrow just enough to pay off the mortgage debt that you currently owe. Many lenders offer loans of up to 90% of the property value on such mortgages.

Advantages:

Refinancing has its own bunch of advantages such as:

1) Obtaining a lower interest rate: If you purchased your home at a time of higher interest rates and wish to take advantage of the lower interest rate, this is the best way out. Experts believe that it is worth the money to refinance if you could reduce your interest rate by 1%-2%.

2) Shortening the Loan's Term: If you wish to cut down the loan term without changing the monthly payment, you can use this method.

3) Changing loan type: Refinancing helps you to change your loan type from adjustable-rate mortgage to fixed-rate loan or vice versa.

4) Consolidating Debt: You may want to refinance in order to pay off high interest debt like credit card debt, car debt etc

5) To pay for expenses such as renovating the house, paying for children’s education and because the interest on mortgages is tax deductible, it is considered a wise move.

6) Building equity by shortening loan term and increasing the amount that is paid monthly
Mortgage refinancing Loan refers to paying off your current loan and replacing it with a new loan that has a lower interest rate and favorable terms. People often seek to refinance their home when interest rates fall below the rate they had on their previous mortgage.

Loan Types:

7) Some companies even use refinancing as a tool to help improve your credit rating.

8) Your first and second mortgage can be consolidated into one that provides a better rate.

Disadvantages:

On the flip side, refinance-

1) Will require you to pay an average of 3 to 6 % of the outstanding principal in Refinancing

Loans cost, plus application fees, new credit report fees, appraisal fees, title search fees etc
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2) Many people who Refinance to consolidate debt, have to pay for the reconsolidation and may end up in more debt than they intended.

3) Many tend to look at refinancing as a means of free credit and so end up squandering the money that they get thereby worsening their financial position

4) Prepayment Penalty is a great deterrent.

5) It involves a lot of paperwork

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