Types of Mortgage Refinance Loans

Technically, you can take out any kind of loan and useAccording to Payment Terms
your loan proceeds to pay off your mortgage. ViewedInterest-only mortgage refinance loan: This type of
this way, any type of loan can be a mortgagemortgage refinance is one where you will be asked to
refinance loan. However, some have restrictions (i.e.pay only the interest for a certain period of time. After
some loans do not offer a big enough credit for payingthe set interest-only payment period has passed, you
off a mortgage) so they don't make good refinancewill have to start making payments towards the
loans.principal.
This article is about the loans you can use forBalloon-type mortgage refinance loan: This type of
refinancing your mortgage. Since these are loans thatrefinance loan is one with an initially low, fixed interest
banks have specifically designed for paying offrate (the actual period varies from lender to lender but
mortgages, they are also known as the commonthis period doesn't usually exceed 10 years). After the
types of mortgage refinance loans that are available inperiod for the low interest has passed, however, full
the market.payment is required on loan balance.
According to Variability of Interest RateFully-amortizing mortgage refinance loan: This type of
Fixed-rate mortgage refinance loan: This type of homerefinancing loan is one where monthly payments are a
refinance loan is one where the interest rate iscombination of interest charges and payments
locked-in to a fixed amount for the whole duration oftowards the balance. This type of loan is ideal for
the loan. Simply put, the home refinance loan will bepeople who wish to add to their equity as well as
kept at a constant interest rate for the whole life ofreduce the balance with every payment.
the balance.Home equity mortgage refinance loan: This type of
Variable-rate mortgage refinance loan: This type ofloan is one where you actually apply for a loan using
home refinance loan is one where the interest ratethe equity you have stored in your home as your
varies with a certain, predetermined index. The interestsecurity for the loan. In this case, you give up your
rate, in this case can be equivalent to the index orequity for money which you can get as outright cash
greater than the index by a fixed margin. In this type ofor as a revolving credit line. Such a loan usually has a
mortgage refinance loan, there is usually anvery good interest rate. However, this type of loan is
introductory rate period where the interest rate is fixedideal for mortgage refinancing ONLY if you have
for a few years (3 and 5 years are common) at aenough equity in your home to pay off your original
very low rate. After this introductory period hasmortgage lender. This can happen if your home has
passed, the rate becomes a true variable rate -appreciated considerably. If you don't have enough
subject to the whims of the market. However, there'sequity to pay off your original lender, you will only be
usually a cap or interest rate ceiling to protect thetaking on a second mortgage, not a refinancing loan.
consumers from excessive index rate increases.