What Does “Refinance” Mean In Real Estate?
If you are a homeowner with a mortgage loan, you have probably heard the term refinance tossed around during conversations. A refinance is a process that involves obtaining a new loan to pay off a current one. Usually with a refinance loan, the goal is to have a better interest rate and better terms than the current loan.
There are several reasons why people may wish to refinance their mortgage loan. A homeowner might want a lower interest rate or could want to improve their credit score. Other reasons could be to consolidate debt or decrease the
equity in the home to have some flexibility with cash.
A common scenario when a homeowner might want to refinance is if he or she currently has an adjustable-rate mortgage loan. An adjustable rate mortgage is a mortgage loan where the interest rate has the possibility of going up. If the interest rate is scheduled to increase, homeowners with adjustable-rate mortgages might want to refinance.
Homeowners might also consider a refinance if they are looking to lower their monthly payments. The first step is to check with lenders and see if a lower interest rate is available than the mortgage’s current rate.
Several factors that can affect your interest rate. These factors include the current market rate, your credit rating, the amount of income that you have and how long you have been in your home.
Another reason to a refinance is to reduce the term of the loan -- for example, if you currently have a mortgage loan for 30 years and you want to change that to a shorter term without paying a pre-payment penalty. This type of refinance will mean that your payments every month will be larger, but your home will be paid off in half of the time.
If you think a refinance of your mortgage loan is a good idea, you should start shopping around to find the best deal for you and your financial situation.
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