Home refinance is the process of the financial institution refinanced the loan so that it’s not paid by the mortgage holder, but instead by a third party. This has been done in order to allow for greater flexibility and lower interest rates for homeowners. The way this works is that just as your home loses value and you have less equity than when you first bought it, a loan may be structured as an interest-only loan with a balloon payment at maturity or some other feature at the end of its term.
The benefits of home refinance
1. Cash out refinancing
The borrower can withdraw cash from the equity in their home to be used for any purpose. This can range from paying off a credit card balance, to funding a vacation or a wedding. In some cases, people are able to retire early by using this cash out feature.
2. Lower interest rate refinancing
Usually the goal of a refinance is to lower interest rates in order to lower the monthly payment and get more affordable terms. Because of the variation in rates, sometimes even if you are already current on your mortgage payments you could save by refinancing with a different lender.
3. Combination refinance: Remortgage and Partial Cash-Out Refinancing
This is actually a combination of two different mortgage refinancing options, and it’s one that most homeowners tend to overlook. Borrowers who already have a mortgage on their home can apply for a second loan alongside the first one, to either pay down the principal on the first or to add some cash out. This strategy has been used by people who have taken out equity in their homes to pay off credit card debt or other loans that are higher interest than what they are currently paying on their mortgages. In some cases, borrowers will use this method to create a lower monthly payment by using the cash-out amount for a variety of other expenses.
Home refinance is process of getting new mortgage on your home, when you can get better rate than you have now. There are more that 20% of homeowners who refinance their home every year.
