Refinancing Home Mortgage Loans: What are your Options?

Refinancing home mortgage loans can be tricky, especially when the housing market is experiencing some turbulence. If you’re considering a mortgage refinance, it’s important to understand the options that are available so that you can choose the home mortgage refinance loan that is best for your situation.

There are as many different loan configurations for refinancing your home mortgage as there were for your original mortgage, if not more. Before you decide on a specific refinancing option, be sure that you understand each kind of loan and are clear on what it is you want to accomplish.

Is it time to refinance?

Before you start shopping around to refinance your loan, take the time to decide if refinancing is your best option at this time. Among the things you should consider before choosing to refinance your mortgage are the following:

- Why do you want to refinance your mortgage?

The most common reasons for refinancing a home mortgage are to lower the monthly payment, to shorten the time it will take to pay off your mortgage, to swap from an adjustable rate mortgage to a fixed rate mortgage or to reduce the overall amount that you’ll end up paying for your loan.

- How much will it cost you to refinance your loan?

A refinance will incur the same closing costs and fees that your original mortgage did. In addition, you may have to pay an early repayment fee on your original mortgage that can be as much as two to three month’s mortgage payments.

- Can you get a lower interest rate on a new mortgage?

One of the best reasons to refinance is because interest rates have dropped since your original mortgage, or because your credit score is significantly better and can get you a lower interest rate. In general, if you can get a interest rate that’s a full percentage point lower, it’s a good time to refinance your mortgage.

- How long are you intending to stay in your house?

The longer you are planning to stay in your current house, the more benefit you’ll get from refinancing your mortgage. Generally, if you’re planning to remain in your house for at least four more years, it’s worth it to refinance your mortgage.

Home Mortgage Refinance Options

In general, you’ll have all the same options for a mortgage refinance as you do for a basic home mortgage. Some of the loan forms are very “creative”, and are meant for specific situations. Others are more basic.

Fixed Rate Home Mortgage Refinance

One of the most common reasons for refinancing a mortgage is to switch from an adjustable rate mortgage to a fixed rate mortgage. The biggest advantage of a fixed rate mortgage is that your monthly mortgage payment remains the same throughout the entire life of your loan. Fixed rate mortgages usually carry slightly higher interest rates than adjustable rate mortgages, and often require better credit scores to secure.

Adjustable Rate Home Mortgage Refinance

Adjustable rate mortgages are also known as ARMs. With an adjustable rate mortgage, the interest rate that you pay can increase or decrease based on a stated index. The biggest advantages to an adjustable rate mortgage are that they generally start out with a lower interest rate than a fixed rate mortgage, and that there is a possibility that your interest rate will fall if the index used decreases.

Hybrid ARM Mortgage Refinance

Hybrid ARMs are a cross between fixed rate and adjustable rate loans. Generally, lenders offer hybrid ARMs with very attractive fixed rate teaser rates. The original fixed rate may be good for 2, 3 or 5 years. At that point, the mortgage resets to an adjustable rate mortgage that is indexed to current interest rates. The biggest advantage of a hybrid ARM refinance is the introductory period, which often allows a homeowner to buy “more house” than they could typically afford without the low introductory years.

Cash-out Refinance Mortgage

If your equity in your home is worth more than the amount remaining to pay on your current mortgage, you may be able to take out a “cash out refinance loan”. Depending on the lender, you can take out a loan for up to 125% of your home’s value, pay off your current mortgage, and use the rest of the cash that’s left for other uses.

Various lenders may also offer special options with their loans to make them more enticing. Those options might include payment holidays, payment of closing costs and flexible payments that allow you pay off your mortgage early with no penalty. Before you choose a refinance loan, take the time to compare several loan offers from different lenders so that you can be sure of getting the best loan for your purposes.