Today’s low interest rates are convincing more and more borrowers to refinance. So it’s no surprise that, this July, applications were 113.5 percent higher compared to the same time period in 2015. Refinancing can help homeowners save money, consolidate debt, or pay off a loan faster. Even better, there are several types of mortgage and refinance loans out there, giving homeowners the opportunity to choose the one that best suits their needs.
1. Fixed Interest Rate Loans
With this type of refinancing, homeowners will receive a fixed interest rate, which means that they will pay the same amount of interest for the entire term of their loan. Knowing that your interest rate will never increase, regardless of the state of the economy, can help make your life a lot less stressful. The only downside is the fact that the interest rate will also not decrease.
2. Adjustable Rate Loans
Adjustable rate loans are the exact opposite of those with fixed rate. In this case, the interest rate on the note is adjusted periodically based on an index which reflects the cost to the lender of borrowing on the credit markets. People choose this option in order to benefit from low interest rates when the market turns, rather than be stuck with a fixed rate that is higher compared to the current market trends. Of course, there’s always the risk that interest rates dramatically increase.
3. Interest Only Loans
This refinancing option allows the borrower to only pay the interest for a period of time determined by the lender. Interest only loans can be very helpful for individuals who find themselves in difficult situations, such as an impending foreclosure, as they offer the borrower a financial break. Regular payments will resume after the period is up.
4. Balloon Refinancing Loans
Homeowners who choose balloon refinancing loans can pay very small fixed interest rates for a period of time, which is usually no more than 10 years. The downside is that they have to pay the full loan balance at the end of that period.
5. Home Equity Refinance
This type of refinancing enables homeowners to cash out on the equity they have in their homes. They can also pick between a fixed rate and a variable rate.