Refinancing Loans:

There are (2) general types of a “refinance”. Either a “Rate and Term” or “cash-out”

A “rate and term” refinance is the refinancing of an existing mortgage to lower the interest rate or change the term of the loan (from a 7/1 ARM to a 30 Year fixed, for example) without increasing the loan amount. This is in contrast to a “cash out” refinance, (see below) A key consideration with a “rate and term” refinance is the amount of closing costs and how fast borrowers can recoup the closing costs with the savings from a lower mortgage payment. A rule of thumb is that a refinance makes economic sense if the closing costs can be recouped in four years or less. If a refinance is offered at “no cost” to the borrower (something West One encourages in most cases), the “recoup analysis” is unnecessary.

Borrowers also refinance existing mortgages to eliminate mortgage insurance if they believe they have enough equity in their property. West One is more than happy to use the tools we have available to help borrowers analyze comparable sales and assess whether or not they have adequate equity to eliminate mortgage insurance.

A “cash-out” loan is the refinancing of an existing mortgage into a new larger mortgage to either advance cash to the borrower, home-improvements, or for debt consolidations, (high interest rate credit cards, auto loans, other debt…).