Understanding mortgage refinance options

Posted by  on Sep 14, 2011

Most homeowners refinance their mortgages to lower their interest rates, but there are other reasons for refinancing. Today's mortgage rates provide homeowners with a variety of refinancing options.

Lower mortgage rates and more

Rate and term refinancing: This is the plain vanilla version of refinancing; you replace your existing mortgage with a new home loan at a lower interest rate. Calculate potential interest savings and your new payment amount using mortgage calculator tools. Pay attention to closing costs when comparing mortgage quotes, as they reduce potential savings.

Cash-out refinancing: For homeowners with sufficient home equity, cash-out refinancing can lower your mortgage rate and provide additional cash for debt consolidation, home repairs, remodeling or big-ticket purchases.

FHA 203(k) rehab mortgage: This loan is approved based on the as-improved value of your home, and can provide funds sufficient for major home renovation. Eligible homes include one-to-four- unit single family residences and some condominium units.

FHA streamline refinance: FHA offers current borrowers with FHA loans a refinance option involving less documentation. This can facilitate closing your refinance quickly with a minimum of paperwork. Streamline refinance mortgages do not provide cash out, and must lower your mortgage payment and interest rate.

Home underwater? Refinancing options available

Today's mortgage lenders typically refinance no more than 80 to 95 percent of a home's current appraised value. Declining real estate markets are causing homes to lose value, which can make normal refinancing impossible. FHA and the federal Home Affordable Refinance Program (HARP) offer homeowners struggling with negative some potential refinancing options.

FHA short refinance: This program is admittedly a long-shot, as it requires your current mortgage lender to write down a minimum of ten percent of your mortgage balance. Mortgage lenders have been slow to participate in the short refinance program, but the result of a short refinance is a new FHA-insured mortgage based on your home's current value. Contact your current mortgage lender or any FHA approved mortgage lender for more information.

HARP refinance: The Home Affordable Refinance Program makes refinancing of conventional loans possible when homeowners cannot qualify for ordinary mortgage refinances. Homeowners must be current on their mortgages and able to qualify for a mortgage refinance under Fannie Mae or Freddie Mac guidelines. The new mortgage amount may not exceed 125 percent of the current home value. Your mortgage must be a conventional (non-government) loan owned by Fannie Mae or Freddie Mac.

Researching your financial needs and refinancing options before shopping for a new mortgage can save time and focus your efforts.


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