When it comes to financing a home, there are two main options: purchase mortgages and refinancing. A purchase mortgage is a loan that homebuyers apply for to finance the purchase of a new home. On the other hand, a refinance mortgage is the process of changing the rate and terms of an existing mortgage. Refinancing can help you lower your monthly payment, save money in interest over the life of your loan, pay off your mortgage sooner, and access your home equity if you need cash for any purpose.
It is important to understand the differences between these two options in order to make an informed decision. A purchase mortgage refers to the initial funds used to finance a home you've purchased. Refinancing involves applying for a new loan to replace the one you already have. This strategy can mimic a shorter mortgage term without requiring the closing costs and underwriting problems associated with an entirely new loan.
Homeowners can access a Streamline Refinance loan if their current mortgage is federally backed, including FHA loans, VA loans, and USDA loans. While different lenders may set their own requirements (sometimes including appraisals and credit approval), the general guidelines for simplified refinancing are as follows: homeowners are limited to 30-year fixed-rate mortgages; ARMs are not allowed. You can save month-to-month with a lower monthly payment or pay less interest overall due to a lower mortgage rate or a shorter loan term. It is important to consider all factors before taking out a cash out loan to invest.
As your finances improve, you'll likely have access to better mortgage options than you had when you bought your home. They can guide you to make better decisions by establishing the advantages and disadvantages of refinancing your mortgage. Refinancing comes with closing costs, which can affect whether getting a new mortgage makes financial sense for you. When this occurs, the conversion to a fixed-rate mortgage results in a lower interest rate and eliminates concerns about future interest rate hikes.