Wednesday, March 14, 2018

Mortgage Refinancing 101

Refinancing your home at the Lake of the Ozarks can be beneficial for reducing the length of the loan, lowering your monthly payment or improving your rate terms. Keep reading to learn the basics of a home refinance from your Lake of the Ozarks mortgage lender.

Mortgage Refinancing 

To "refinance" your home means to replace your current mortgage loan with a new one. Your needs as a homeowner years ago may not be the same as the needs you have today. Maybe mortgage rates are currently lower than when you first applied for your home loan. Maybe you improved your credit over the years and now you can qualify for a better rate than you did in the past. Maybe you are struggling to make your monthly mortgage payment and need to decrease that payment. Some of the main reasons people choose to refinance their home include: to obtain a lower interest rate, shorten their term in order to pay their home off more quickly or to use their equity to get money for home improvements, kids' college tuition costs, etc.

Types of Mortgage Refinances 

There are several different types of mortgage refinances: rate-and-term, cash-out and cash-in. The type you choose will depend on your unique situation and what your goals are with the refinance.

The most common type of mortgage refinance is a rate-and-term refinance. In this type of mortgage refinance, the only difference between your current loan and the new one will be the mortgage rate, the loan term or both. For example, you may want to refinance from a 30-year fixed rate mortgage to a 15-year fixed rate mortgage. With this type of loan, you are not allowed to get additional money in your pocket. Typically, you can only finance the current payoff amount of your existing loan, closing costs and prepaid items into the new loan.

In a cash-out refinance, the loan amount of the new mortgage will exceed the original mortgage balance. Due to the fact that the homeowner only owes the original amount to the bank, the "extra" amount is paid to the homeowner at the closing. In the event of a debt consolidation refinance, that cash could be paid directly to the creditors that are being paid off. These mortgages represent more of a risk to a bank than a rate-and-term refinance and therefore can require more strict approval standards, such as a higher credit score, and can carry a higher interest rate than a rate-and-term refinance.

A cash-in refinance is the opposite of a cash-out refinance. For this type of refinance, a homeowner pays cash to pay down the loan balance and reduce the amount owed to the bank. The most common reason for this type of refinance is to get access to lower mortgage rates that are only available at lower loan-to-value ratios. Another reason for this type of refinance is to cancel PMI (Private Mortgage Insurance), which is required until your LTV is 80% or lower.

If you're interested in learning more about the possibility of a Lake of the Ozarks home refinance, give us a call at 573-746-7211. As your mortgage professional at the Lake of the Ozarks, I'm committed to working with you every step of the way. I'll discuss your financing options, offer competitive interest rates and back it up with the first-class service you deserve!

For Lake area news, resources and tips on financial services, please 

Michael Lasson
Senior Loan Officer
NMLS #: 493712

4655 B Osage Beach Parkway
Osage Beach, MO 65065

Direct: (573) 746-7211

**The postings on this site are my own and do not necessarily represent First State Bank of St Charles’s positions, strategies, or opinions.

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