Refinancing is a common term in the real estate and the home-owner world, however, many people do not completely understand it. Our goal at Burns & Ellis Realtors, located in Dover, DE, is to provide you with a quick and simple guide to refinancing your home mortgage. Read on to learn more, and If you are in the Dover, DE area and looking for a team of professionals to help you buy or sell your home, contact the experts at Burns & Ellis Realtors today!
What is Refinancing?
At its most basic level, refinancing refers to the process of replacing your current home mortgage with an updated version. The process of refinancing your mortgage can allow you to change the term of your current loan and/or switch from an adjustable-rate to a fixed rate. Refinancing can have several benefits, such as lowering your monthly payment, saving on interest over time, paying off your mortgage in less time, and to receive cash either in hand or transferred to your mortgage balance from the equity you have put into your home. Overall, refinancing your home can give you some financial breathing room in a number of areas, and may help you reach your goals more quickly.
The Three Types of Refinancing
Rate-and-Term
Overview Rate-and-Term refinancing allows you to change your mortgage's interest rate, the term, or both. Oftentimes, people choose to refinance this way because interest rates have decreased in their area over time, or the loan holder has made improvements to their credit to the point that they would receive a better rate at their current score. Potential Benefits Lower monthly payment Reduce interest over time Continue building equity Pay off your home faster Change from an adjustable-rate to a fixed-rate Change your loan type
Cash-Out
Overview Cash-Out refinancing allows you to get a new loan that is higher than the one that you currently have. The amount difference will go to you in cash when the refinance closes. Essentially, through a cash-out refinance, you are cashing out equity that you currently have in your home. This option is great when you need finances to put towards home improvements, debt, child expenses, or anything else you may need. Nerdwallet.com has a great explanation of how this works: “Say your home is valued at $200,000 and your mortgage balance is $100,000, giving you $100,000 of equity in your home. You could refinance your $100,000 loan balance for $150,000 and receive $50,000 in cash at closing.” Potential Benefits Borrow a large sum of money at a low-interest rate lower interest rate Change in loan term Cash in hand
Cash-In
Overview Similarly to cash-out, cash-in refinancing essentially allows you to take that equity that a cash-out refinancer would receive in cash, and instead, put it towards your principal. Potential Benefits Lower interest rate Pay off your loan more quickly Change in loan term Large sum towards your loan principal Continue to build equity Opens doors to future refinancing options
Knowledge is Power
Depending on your situation, refinancing can have great benefits for you financially. However, choosing the right type of refinancing will play a major role in that. We hope we were able to help clear up some questions you may have had around this topic. If you are looking for a dedicated team in the Dover, DE area to help you buy or sell your home, contact Burns & Ellis Realtors today!