Home Loan Refinancing Types

Types of Home Loan Refinancing

There are many home loan options in the market today, and they change constantly. With many different fee structures, features of the loan, and interest rates it is important to do your research and know some common information before talking to a professional. Here is a list of the most common loans that are commonly refinanced.

(ARM) Adjustable Rate Mortgage

This type of loan changes throughout the length of the loan that you receive. Initially with this type of loan the interest rate is fixed for a few years, generally 3 to 5, before it adjusts according to the economic index that it was attached to at the birth of the loan. This type of loan can re-adjust to a higher or lower interest rate after the allotted amount of time. The rate initially of the loan is almost always lower than a fixed rate mortgage (FRM). Refinancing to a Adjustable Rate Mortgage can be a good choice in some circumstances to save money initially on the interest rate and then plan on refinancing down the line if you are certain interest rates will remain low or fall.

(FRM) Fixed Rate Mortgage

A fixed rate mortgage will set your interest rate in stone for the period of your choice, up to 50 years in some cases. This loan is the easiest to budget and make sure your financial situation is safe, because you know your payments will not increase. The drawbacks of this loan type are the facts that it usually doesn’t have the flexibility of other mortgage types. They usually don’t allow extra or other payment options other than once a month payment.

Balloon Home Loan

A Balloon home mortgage loan is a product that has a fixed interest rate for a set of years just like a Fixed Rate Mortgage but has a much shorter period, which is normally around 7 to 10 years. A balloon loan could provide benefits for some home owners due to the fact that the interest rate is generally very low with this type of loan, but it is quite risky. When the term of the loan is finished, the mortgage is repayable 100%, which can cause trouble for some. With careful planning a balloon home loan could be a great refinancing option.

Home Equity Loan

A home equity loan is a program that allows you to tap into your equity that you have accumulated on your home over your years of payments. You can borrow out cash from your mortgage to acquire the money to renovate your home, pay for college for a child, get married, or any other way that you choose. The loan that you will refinance into will be a fixed rate, so your APR (Annual Percentage Rate) will stay the same for the entire length of the mortgage. This will assure that your payments do not increase. As always you must take care not to lower your home equity too drastically when thinking of a home equity loan.

Line of Credit Loan

This type of loan is much like a home equity as you can borrow on the equity of your home. You can borrow up the original amount borrowed on your mortgage. You can pay off this amount at any time, but there are higher interest payments for you. It helps people borrow the money that they need without being hurt by extremely high credit card and personal loan interest rates. This could help many people to reduce their financial strain by refinancing, but as always talking to a professional mortgage broker is recommended.