The purpose of refinancing a mortgage do is to lower your monthly payment.
Common reasons for homeowners refinancing include, gaining financial relief from underwater mortgages, lowering monthly mortgage payments, building home equity, or all the above. Some homeowners pull equity out of their homes to pay off debt. Others desire to refinance to shorten their loan term and build equity faster or correlate the final mortgage payments with retirement plans.
Depending on your personal circumstances, many homeowners who want to refinance their mortgage have several options.
RATE AND TERM REFINANCING
Rate and Term Refinancing allows you to borrow just enough to pay off your current mortgage balance. You can modify the interest rate on your loan, change the loan term, or adjust both. For instance, a homeowner may choose to refinance from an adjustable rate mortgage to a fixed rate mortgage when the rate of an ARM is expected to adjust upwards. Your loan specialist will educate you about the loan program that suits your personal needs.
This option leaves you with an excess cash amount after you have paid off the current mortgage balance. You extract the cash proceeds from your home equity.
FHA STREAMLINE REFINANCING
Streamline refinancing refers to the documentation and underwriting carried out by any lender to find out if the borrower would qualify for a refinance loan. This is a kind of loan program that does not require any credit verification but may or may not require an appraisal.