If you want to replace your current mortgage loan with a new loan, keeping your same property as collateral, so that you can lower your monthly repayment, as the interest rate has reduced in the market, you can opt for refinancing your equity loan.

Refinancing – Types and features

Refinancing is the act of altering the mode of repayment of your current mortgage loan, by changing the terms and conditions of the loan. If there is a drop in interest rate in the market than your current interest rate, you can opt for a refinance. You can also opt for a refinance if, you want to extend your loan term or reduce your monthly payment amount or want to pay off your other debts.

There are 4 main types of refinancing loan. These are:

1. Fixed rate mortgage refinance: In this type of loan, the interest rate remains fixed over the loan term. Generally the loan term is between 10-30 years, but, the borrowers have tendency to go more for 15 year or 30 year loan. However, this type of loan does not offer redraw or extra payment facilities.

2. Adjustable-rate mortgage refinance: In this type of loan, the interest rate remains fixed for an initial time, during that time the rate is 1-3 points lower than the interest for fixed rate mortgage. The initial period can be of 1-7 years, and after that the rate rises or falls according to the market index.

3. Cash out refinance: You can opt for this type of refinance if, you want to apply for an amount greater than your existing mortgage amount. You can keep the difference, if you be eligible with your current home equity. Generally you can opt for this type if you have more than one mortgage or you want cash, to pay off your credit card debts or to consolidate your multiple debts.

4. No-closing cost refinance: This type of refinance is offered by very few lenders. Contrary to the traditional refinances, in this type, you do not have to pay closing cost charges for courier fees, title insurance, title search, flood certification fees, attorney’s fees, etc. The lenders will pay for all these, but, you have to pay towards homeowner’s insurance, prepayment penalties on the previous mortgage, escrow fees, prepaid interest on the new mortgage, etc.

Prior to refinancing your loan, you should be aware of the detailed feature of each type of refinance, and choose the type of loan which suits you the best.

Useful sites :

Refinance - San Francisco Mortgage Pro will help you to understand today’s interest rates and what drives the markets.