Refinancing and mortgage are two different concepts that are often confused. A purchase mortgage is the financing used to finance the original purchase of a home, while refinancing allows homeowners to make changes to their existing mortgage rates. Refinancing is when a homeowner obtains a new home loan to replace their current loan, while modifying a loan is a change to the original terms of your home loan. You can't refinance without first having a mortgage.
The new loan should help them save money or meet another financial goal. The new loan can have different terms, ranging from 30 to 15 years or an adjustable rate at a fixed rate, for example, but the most common change is a lower interest rate. Refinancing can allow you to lower your monthly payment, save money on interest during the life of your loan, pay off your mortgage sooner, and take advantage of your home equity if you need cash for any purpose. Homeowners can access a Streamline Refinance loan if their current mortgage is federally backed, including FHA loans, VA loans, and USDA loans.
The best way to find a low rate is to look for three to five different lenders and compare offers. Plus, since there's no rush to close a refinance, unlike buying a home, you can spend more time comparing prices and finding the lowest interest rate. A no-closing refinance allows you to refinance without paying closing costs upfront; instead, you include them in the loan, which means a higher monthly payment and probably a higher interest rate. With a cashback refinance, you can change your term or rate, but you'll also get the difference between your old and your new mortgage.
Officially known as the VA's Interest Rate Reduced Refinance Loan (IRRRL), the VA Streamline Refinance also waives verification of income, assets and credit ratings. Simplified refinancing speeds up the process for borrowers by eliminating some of the requirements of a typical refinance, such as a credit check or appraisal. In addition, most refinance loans require closing costs, which normally amount to between 2 and 5 percent of the loan amount owed in advance. If you're struggling to make your mortgage payments and you're at risk of foreclosure, your lender may offer you a new loan lower than the original loan amount and forgive you the difference.
While it's not the best time to refinance due to rising interest rates, you could consider refinancing if you want to take advantage of your home's equity. It's probably a good idea to refinance if you already have an FHA loan and an FHA refinance can result in a lower interest rate.