When you are replacing your existing mortgage with a new loan, it is referred to as mortgage refinancing. Don’t confuse refinancing mortgage with the second mortgage. It is in addition to your first loan. That means the borrower gets the money with better terms to pay off the original loan. It also includes the cost which is associated with the mortgage refinancing.

Types of Mortgage Refinancing

Mortgage refinancing is of three types, and the rates vary between them.

  • Rate-and-term

In this finance, the terms associated with the new loan that differ from the original mortgage are: loan term or mortgage rate or at times both

  • Cash-out

Here the balance loan amount exceeds the original loan. You can also consolidate your existing and new loan when the second one was not taken during purchase time. Cash-out refinance mortgage can also optionally features shorter loan term or lower mortgage rate than the original loan.

  • Cash-in

It is opposite to cash-out refinance. Here the borrower pays off the existing loan amount to get them qualified for mortgage refinancing under a definite loan-to-value amount. Loan-to-value is the ratio that is calculated by dividing the mortgage with the property value. 

Homeowners prefer taking cash-in mortgage refinance as it results in the shorter loan term, lower mortgage rate, or even both. Another reason for selecting this refinance mortgage is for canceling mortgage insurance premium. The premium is not due when 80% loan to value on loan amount is paid off.  

When you apply for mortgage refinancing, you are evaluated on the following terms:

  • Credit score
  • Payment history
  • Income
  • Employment history
  • Retirement assets
  • Cash Reserves
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