Types of Refinance Loans
With the way interest on loans go up and down in the market. It is now possible to get loans with good interest rates. Refinancing your loan might be a great and intelligent step you should take in order to repay your loans. We have a few types of refinance loans, some of which include:
Rate and Term Refinance
It is a common type of refinance loan in which an existing loan is replaced by a new loan with a better term or interest and the new loan is used to repay the old debt. For instance, you can replace a variable rate mortgage loan with a fixed rate mortgage loan because of its advantage. A fixed rate mortgage loan has a fixed interest rate throughout the duration of the loan.
This kind of refinance is not really common and it is not easy to come by. It usually when you have a debt that is excessive and may lead to foreclosure of your property. It involves a bank or lender paying off your old loan and replacing it with a new one with better and lower interest.
Cash out & In Refinance
Cash-out refinance loan are finances useful for someone in need of cash. This kind of refinance has a few requirements. The first requirement is that your home or owned property should worth more than the mortgage loan. This kind of refinance loan involves paying off the already existing loan and then refinancing the new loan.
Cash-in refinance loan is a type of refinance loan in which cash is brought in by the borrower, thereby trying to reduce or decrease the value of the mortgage loan.
Pros of Refinancing
Refinancing can be a very smart loan option that assists in the payment of one’s debt. However, it has some benefits, some of which includes:
- Refinancing assists one in a way to save money. When a loan is replaced by another loan with better terms or interest rate (low), thus saving some money in a way.
- Refinancing helps in a way by lowering the payment of the debt monthly as well as extending the deadline for payment. It looks like you kind of restarted the timer for the loan when refinance.
- Refinancing can help you reduce a long-term loan to a short-term loan with better and lower interest. For instance, a 25-year loan can be replaced with a 10-year loan with lower interest rates.
- You can change your loan option from an adjustable rate to a fixed rate, most especially when you want to protect the low-interest rate which might increase.
The Right Time to Refinance
There is always a right to do anything you want to do. As there is a right time to collect a loan, there is also a right time to refinance that loan.
The first thing that can affect getting a good interest rate is your credit score. Probably, you had a large sum of debt on your head which actually spoilt your credit score. This would definitely affect getting a good deal but improved credit score would help you get better terms.
How to Refinance
Refinancing can be a very tasking aspect of financing, you definitely need an expert or professional to lead you through this path. We can help you with quality financial advice on the right time to refinance, which kind of refinance loan to use as well as how to avoid its disadvantages.