When you purchase a home, you must obtain a mortgage to pay for it, and this can be a considerable commitment. Fortunately, the original terms of your mortgage don’t have to be permanent. Rate and term refinancing is a common financing option that could save you a significant amount of money over time. By opting to update your mortgage with a rate and term refinance, you can replace your existing loan with a new one that is more suitable for your current needs. Refinancing your home mortgage can come with many benefits, and our loan specialists at Foundation Mortgage can help you determine if a rate and term mortgage refinance is the right solution for you if you are located in the areas of Knoxville, Maryville, Lenoir City, Oak Ridge, or Gatlinburg, Tennessee.
Two Types of Refinance Options
When it comes to refinancing your mortgage, there are two main options: cash-out and rate and term. In a cash-out refinance, the new mortgage is larger than the old one, and the borrower receives a cash payout from the price difference. Oftentimes, cash-out refinancing comes with better interest rates, and borrowers use the cash payout for home improvements or debt consolidation.
Rate and term refinance, on the other hand, replaces an older mortgage with a new one, and does not include a cash payout. The refinanced loan often comes with an ideally lower interest rate and/or updated mortgage terms. The existing mortgage is essentially paid off by opening the new loan, and the older loan balance is passed onto the new loan.
Why Do Homeowners Choose Rate and Term Refinance?
There are several reasons that homeowners choose rate and term refinance as an option. One major reason homeowners choose this alternative is to take advantage of lower interest rates during favorable housing market conditions, which can significantly lower mortgage payments. Some other common reasons people choose rate and term refinance are to change the terms of the initial loan, eliminate mortgage insurance, or even to switch loan types. For example, a homeowner may want to pay off their mortgage more quickly if they have the financial capability to do so by paying higher monthly payments through a rate and term finance. In contrast, other homeowners may experience a negative economic impact, such as a divorce or a job loss, and may need to extend the terms of their loan in order to have lower monthly payments.
If you are looking to refinance your home for any reason, the benefits of rate and term refinancing are worth consideration. Foundation Mortgage can help you determine your financial situation, and if the benefits outweigh the costs of refinancing a loan. Although you are required to pay closing costs with a refinance, the lower interest rates should eventually offset the amount the borrower paid for the costs in the long run.
Refinancing Your Home With the Rate and Term Option
When choosing to decide whether or not to refinance your home, there are many crucial things to consider. If you are located in the areas of Knoxville, Maryville, Lenoir City, Oak Ridge, or Gatlinburg, Tennessee, Foundation Mortgage can help you understand the process and find a refinancing option that works best for you. Contact our team today for a consultation.