In a refinance, you have choices about how it’s going to work. The most basic of all of these decisions is whether you are taking money out or not. If you are, you’re going to use a cash-out refinance. If you just want to lower your payments, or change the length of your loan, you want a rate and term refinance.
The Big Differences
A Rate and Term Refinance swaps out your current loan for one with terms that are more favorable for the borrower.
A Cash Out Refinance does the same thing, but also allows the borrower to take money out of the equity they have built in their home.
How All Refinances Work
The refinance process is pretty easy to explain. It’s essentially taking one mortgage and swapping it out for another that fits what the borrower needs. At the end of the process, the old mortgage is paid off in full, and the new mortgage applies going forward.
Refinances are done for a lot of reasons, most commonly to save money.
Think of it this way: in August od 2008, before the market crashed, average interest rates on 30-year fixed mortgages were nearly 6.5%. After the crisis, these rates have slid downward over the years. Four years later, in December of 2012, that same loan had an average rate of 3.35%. In 2017, this rose slightly to 3.99%, in 2018 went up again to 4.54%, and in 2019 dropped again to 3.94%, per Freddie Mae. Looking at those numbers, even the highest rate in the bunch beats that 2008 rate.
During the current Coronavirus situation, interest rates have continued to fall, with some borrowers getting rates in the 2% range.
How Does a Cash-Out Refinance Work
In a Cash-Out Refinance, the new loan that you take out is bigger than the one that you had. You’re given the new loan plus money from your home equity, built by making payments and the value of your home rising.
How Does a Rate-And-Term Refinance Work
A Rate-and-Term Refinance is a much simpler process. You don’t get a check at the end, and the size of the loan stays the same. The current mortgage terms are just traded out for (hopefully) better ones that lower your payment or shorten the length of time you pay off the loan.
So overall, in a Rate-and Term Refinance vs Cash-Out Refinance battle, the winner is essentially up to you. The borrower has to determine which loan type is best for them, whether they want to get cash out for home repairs or improvements or to pay off credit cards or other debts, or if they want to take advantage of lower rates to own their home sooner or put a little money back in their pockets with a lower monthly payment.
The best part of this discussion is that all refinances done with us mean that the borrower can take 2 full months off from making payments.
Call The Home Loan Expert Team at 800-991-6494. You can always apply online at hero.loan for your VA Loan, and www.thehomeloanexpert.com for your other mortgage needs, and we’re also open on Saturdays and will come to you to help close your loan. We work hard to make it easy on you. Nobody gets lower rates on better loans than The Home Loan Expert, Ryan Kelley, why go anywhere else?
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