Mortgage Services and Loan Tips

Home Mortgage Refinancing: Selecting the best form

There are many types of Mortgages and home loans, and given that how you finance your home is one of the most important decisions you will make, it is important that you know and understand your options. This article should not replace discussing things with a financial adviser before making a decision, but it gives an overview of the types of mortgages that are available.

The speed and Term Refinance is the most common type of mortgage refinance. This category usually refers to getting a fixed rate mortgage has a better price and possibly a different length (term) than your current one. Rate and term refinancing is best for people who can reduce their rate of an existing fixed-rate mortgages, or can afford a shorter period. In some cases, however, rate and term refinancing operation used to actually increase the term for those who want a lower payment.

A Cash-Out Refinance done by refinancing at a higher amount than you owe, either after you have paid a substantial part of your house down, or at your home appreciates in value. Cash out refinancing is good for those who have substantial investments to make, which in their children's education, an addition to their home or the purchase of an investment. Beware that a cash-out refi could weaken your price in a future refinancing.

Interest-only mortgages used to be popular, but has fallen out of favor recently. Interest only mortgage allows you to get the lowest payment possible, but they leave you with less equity in your home (you have not paid any principle). These types of refinance may be best for those who are confident appreciation potential of their homes and those whose financial situation is odd (because you can take control and pay the principal, but only when and if you can afford).

Part and part mortgages are not so popular in the U.S. that they are in Britain. These loans are a combination of grace and "regular" mortgage. You pay interest only for a while and then switch to a more traditional mortgage, where the principle is paid as well. These mortgages are popular with people who are just starting out in their careers and anticipate afford a higher payment in the future.

Two step mortgage is not known, but offers a low rate for a specified period and then a higher fixed rate after that. Two step mortgages are also popular with younger buyers just starting their careers. They are also often a good choice for people who know they are going to move, or expect to refinance a new mortgage before the higher rate kicks in.

Assumable mortgage can be any of the above, but contains a powerful opportunity: If you sell your home, the buyer can take over your mortgage intact, with The exact rate and term. Assumable is a great option if you have a very low rate and plan to sell your home. This may actually increase the resale value and attractiveness your home to a buyer, especially in times when mortgage rates have risen.

Home equity loans are usually secondary to an existing mortgage. You can often get a loan for a portion of the difference between your home's value and the amount you owe on your mortgage. The rates on home equity loans is often fixed, and is usually higher than the prevailing mortgage rates.

Home equity lines of credit are also taken out using your equity in your home as collateral. However, home equity lines of credit have variable (though often very low) rates. Home equity loans allow for flexibility – you can borrow as much or as little as you want on the amount you have been approved.

There are many other types of mortgages, but these are the main ones being offered by major lenders. It is important that you do your homework, based on your unique situation before choosing your mortgage.

About the Author

For more information about home mortgage refinancing, including tips on when to refinance, how to get the lowest rate on your new loan, and how to choose the best broker or bank, please see my blog at RefiLoans.org