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There are many different types of loans you can choose
from. These descriptions should help you make the choice
that's best for your particular situation. There are
two types of refinances:
- A "cash-out" refinance
where you take equity out of your home
- A "no cash-out",
where you borrow only enough to pay off your present
mortgage and closing costs on the new loan.
FHA
Loans insured by the Federal Housing
Administration (FHA). Requires a mortgage insurance
premium at closing and for the life of the loan. Because
of this, many people choose to refinance with a conventional
loan.
Streamline Refinance
If you already have an FHA loan, you
can get a low-cost loan to lower your interest rate
if rates are lower than your current rate. A streamline
refinance could save you hundreds of dollars in closing
costs. For example, some streamline refinances don't
require an appraisal.
Cash-Out Refinance
For a cash-out refinance on an FHA,
you can borrow up to 85% of the value of your home.
Terms: Available
with a fixed rate, or with an adjustable
rate with rates adjusting every year.
Maximum loan amount:
Varies among counties, with most
at a maximum of $200,160.
Mortgage Insurance: FHA
requires payment of a
mortgage insurance premium of 1.5% of the loan at closing.
This can be financed by adding it to your loan. A monthly
premium of .5% of the balance of the loan is required
with each monthly loan payment.
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VA Loans
For military veterans only. The Veteran's
Administration (VA) guarantees these loans for the lender.
Like FHA loans, most VA loans are made for purchasing
a home, but VA has a streamline refinance program as
well for just lowering the interest.
You can borrow up to 90% of the value
of the home for a cash-out refinance.
Terms: available
with a fixed interest rate.
Fees:
VA requires a "guaranty" fee of 2-3% of the loan at
closing. This can be added to your loan.
Maximum loan amount:
$417,000, including the guaranty
fee if it is added to the loan.
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Conventional Loans
Loan limit: $417,000. Loans above
that level are referred to as "Jumbo" mortgages, and
while readily available, they have interest rates that
are slightly above those for conventional loans.
Programs do vary, but you can typically
get a no-cash out refinance up to 95% of the value of
the house* and a cash-out refinance up to 90% of the
value.
Types of Conventional Loans
Fixed Rate
Best for people who:
- will be staying in their
home at least another 5 years
- prefer a fixed payment over
the life of the loan
- who are refinancing at a
time when interest rates are relatively low
Terms: 10, 15, 20, 30 years
ARMs
Best for people who:
- need lower monthly payments
for the first few years.
- need more borrowing power
for a cash-out refinance; initial interest rate is
lower than fixed rate mortgages.
- want to qualify for the highest
loan amount possible.
Terms: You
can choose an ARM that adjusts its interest rate every
1, 3, or 5 years with various term options.
Or choose an ARM with a fixed rate for 3 or 5
years after which time it adjusts every year.
These are referred to as 3/1 or 5/1 ARMs.
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Insured Conventional Loans
Identical to conventional loans,
except they are insured for the lender by a private
mortgage insurance company. Because of this, they require
a mortgage insurance premium* payable until equity in
the home reaches 20% of the value.
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