Residential Loans: Refinancing
What is residential refinancing?
- Refinancing entails finding a new lender (or getting the current lender) to pay off the borrower’s old mortgage balance in exchange for a new mortgage.
- As such, once the borrower refinances, the old loan is paid off, and a new one is put in its place.
- The most common reasons motivating borrowers to refinance are (1) to save money by obtaining better terms such as a lower interest rate (“rate and term refinance”); or (2) to take equity out of the home in the form of cash to, for example, do home renovations (“cash-out refinance”).
- Other reasons to refinance may include a divorce, where one spouse agrees to allow the other spouse to refinance and put the deed solely in his or her name.
Sample residential refinancing programs
There are two main types of residential refinancing (or “refis”):
Rate and term refi:
- In this type of refinancing, the borrower simply trades the current mortgage terms for newer and better terms (such as a lower interest rate, or conversion from an adjustable rate to a fixed rate).
- No actual money is exchanged, except closing costs. However, some lenders allow “limited cash” to be given to the borrower without requiring the transaction to be reclassified as a cash-out refinance. For example, some lenders might provide up to the greater of $2,000 or 1% of the principal amount of the new mortgage.
- Unlike the rate and term refi, for a cash-out refi, the borrower not only gets new loan terms, but also is advanced money, effectively taking equity out of the home in the form of cash. Typical uses for the cash include paying down debts, helping pay college costs, or performing home renovations.
- Some lenders are willing to provide cash-out amounts up to $1 million, up to $4 million, or even unlimited, based on the loan-to-value ratio and the borrower’s creditworthiness.
- (As an alternative to cash-out refinancing, we can also help borrowers secure funds in the form of a second mortgage – either as a one-time home equity loan or a home equity line of credit.)
Sample success stories
Learn how we’ve helped families and individuals obtain refinancing for their Florida homes. Go to our “Success Stories” page and filter by “Residential Refinancing”.