If you're looking for a longer mortgage term, lower costs, or lower interest rates, a mortgage refinance could be right for you. Choosing the right mortgage refinance options for your needs can greatly impact how much you can save with a refinance.
Below, we'll breakdown the nine most popular options to help you decide based on factors ranging from your current mortgage type or your home’s value to whether you plan to get rid of private mortgage insurance.
Key Takeaways
- You can choose from various mortgage refinance options based on your financial needs and current mortgage, from a USDA Streamline Refinance to a rate and term refinance.
- While most mortgage refinance will require you to pay closing costs of 2% to 5% of the loan, some lenders will let you roll these costs into the loan.
- Before applying for any type of mortgage refinance, consider your financial strengths and current home loan to determine whether it is wise for you.
9 Options to Refinance Your Mortgage
Here are nine popular options to refinance your mortgage this year.
1. Rate-and-Term Refinance
You can consider a rate-and-term refinance when you want to replace your mortgage loan with a new loan with a different interest rate or term without advancing additional cash. You might choose a rate-and-term refinance if mortgage interest rates have decreased. Or, if your credit has increased significantly, you could choose a rate and term refinance if you could secure a lower interest rate.
2. Cash-Out Refinance
With a cash-out refinance, you can access some of the equity you've built up in the home. With this refinancing option, you'll take a new loan for the home's current appraised value, pay off the existing mortgage, and take some cash out. You might consider a cash-out refinance if you need equity for home repairs, if interest rates have dropped, or as a way to use some cash in your home for other major expenses or retirement savings.
3. Cash-In Refinance
A cash-in refinance is the opposite of a cash-out refinance. You'll take a new loan, but you'll pay additional cash into the loan, increasing your equity in the home. With a cash-in refinance, you could potentially drop private mortgage insurance (if you surpass 20% equity) or qualify for lower interest rates. You might choose a cash-in refinance if you've recently received an inheritance, bonus, or other windfall.
Alison/Patton: Interlink to https://www.benzinga.com/money/cash-in-refinance once it’s published
4. No Closing Cost Refinance
With a no-closing-cost refinance, you'll roll the closing costs of the home into your new mortgage. By moving these expenses into the loan's principal or for a higher interest rate, you'll still pay the costs (and possibly more) but won't need additional cash at closing. A no-closing cost refinance can make sense for families short of savings or additional cash who need to refinance for a longer mortgage term or because interest rates have dropped substantially.
5. Reverse Mortgage
A reverse mortgage is a way to access equity in your home. It's a way for older homeowners to tap into some of the equity in their homes to cover retirement expenses. Unlike a standard home loan in which you pay the lender a monthly mortgage payment, a reverse mortgage pays you a monthly sum from the equity in your home.
Of course, there are pros and cons to a reverse mortgage, as you'll be taking away equity and could risk losing your home. On the other hand, you can qualify over a certain age and only need to repay the reverse mortgage when you sell the home or move out. You can find the best reverse mortgage lenders to compare offers before choosing this option.
6. Short Refinance
With a short refinance, the lender issues a new loan and forgives the difference between what you owe on the original mortgage and the new loan amount. This is commonly used to help a borrower avoid foreclosure. It is more time and cost-effective for the lender than a foreclosure proceeding. A short refinance could be a good option for a borrower who is struggling to make monthly mortgage payments.
7. FHA Streamline Refinance
An FHA Streamline Refinance allows you to refinance your current FHA-backed mortgage. Based on your credit score and refinancing needs, you can choose between credit-qualifying and non-credit-qualifying options. An FHA Streamline Refinance is usually the best option for low-income borrowers who meet the FHA qualifications and already have an FHA loan.
8. USDA Streamline Refinance
Similar to an FHA Streamline Refinance, a USDA Streamline Refinance is often the best option for borrowers who already have a USDA loan. The property will need to be in a USDA-qualified area. You could choose this option if you want to get a better interest rate or terms to lower your monthly payment. You can choose between a streamline-assist or standard streamline refinance to potentially save even more.
9. VA Streamline Refinance
A VA Streamline Refinance, called a VA IRRRL, pronounced as “VA earl,” is a mortgage refinance option for borrowers with an existing VA loan. This option allows homeowners to convert an existing VA loan to a new VA loan with a lower interest rate or convert a VA loan from an adjustable to a fixed rate.
This can be a good option for qualifying veterans or service members and their families to take advantage of lower interest rates or to secure a fixed rate.
How Much Does It Cost to Refinance?
Closing costs to refinance a mortgage can be anywhere from 2% to 5% of the loan value. The average cost to refinance is around $2,300 plus 1% of the loan's principal, but that can vary widely by the total loan amount, the lender, and the type of refinance.
Factors to Consider Before Refinancing Your Home Loan
Before refinancing your home loan, look at key factors that the lender will consider in determining your loan qualification and interest rate, including:
- Credit score
- LTV ratio
- DTI ratio
- Property value
- Income
- Assets
- Debt
- Employment history
- Loan terms and duration
- The need for private mortgage insurance or other insurance
Compare the Best Mortgage Refinance Lenders From Benzinga’s Top Providers
If you're considering a refinance, carefully compare the best available rates and terms. You can start by checking out Benzinga's top lenders here.
- Best For:Online MortgagesVIEW PROS & CONS:securely through Rocket Mortgage (formerly Quicken Loans)'s website
- Best For:Flexible Mortgage OptionsVIEW PROS & CONS:securely through Angel Oak Mortgage Solutions's website
- Best For:Self-employed BorrowersVIEW PROS & CONS:securely through CrossCountry Mortgage's website
Which Type of Refinance Is the Best?
There's no one-size-fits-all refinance solution. Instead, consider factors like your current mortgage type, home value, equity in the home, and reason for refinancing. Be sure to carefully compare the best offers before choosing a refinance type and lender to work with. By spending time researching options, you could lower your monthly payments and save thousands over the loan's lifetime.
Frequently Asked Questions
Can you refinance your mortgage with a different lender?
Yes, you can refinance a mortgage with a different lender.
Can you refinance two properties at the same time?
Yes, you can refinance two properties at the same time. However, in that case, it might make sense to choose the same lender for both properties.
Does mortgage refinance require an appraisal?
Most mortgage refinance options do require an appraisal. However, there are exceptions, such as a USDA Streamline Assist refinance, which usually doesn’t require an appraisal.
About Alison Plaut
Alison Kimberly is a freelance content writer with a Sustainable MBA, uniquely qualified to help individuals and businesses achieve the triple bottom line of environmental, social, and financial profitability. She has been writing for various non-profit organizations for 15+ years. When not writing, you will find her promoting education and meditation in the developing world, or hiking and enjoying nature.