Title: Types of Mortgage Refinance Loans
Word Count: 551
Summary: Technically, you can take out any kind of loan and use your loan proceeds to
pay off your mortgage.
Keywords: finance, loan, dept, home, consolidation
Article Body: Technically, you can take out any kind of loan and use your loan proceeds
to pay off your mortgage. Viewed this way, any type of loan can be a mortgage refinance
loan. However, some have restrictions (i.e. some loans do not offer a big enough credit
for paying off a mortgage) so they don’t make good refinance loans.
This article is about the loans you can use for refinancing your mortgage. Since these are
loans that banks have specifically designed for paying off mortgages, they are also known
as the common types of mortgage refinance loans that are available in the market.
According to Variability of Interest Rate
Fixed-rate mortgage refinance loan: This type of home refinance loan is one where the
interest rate is locked-in to a fixed amount for the whole duration of the loan. Simply
put, the home refinance loan will be kept at a constant interest rate for the whole life of
Variable-rate mortgage refinance loan: This type of home refinance loan is one where
the interest rate varies with a certain, predetermined index. The interest rate, in this case
can be equivalent to the index or greater than the index by a fixed margin. In this type of
mortgage refinance loan, there is usually an introductory rate period where the interest
rate is fixed for a few years (3 and 5 years are common) at a very low rate. After this
introductory period has passed, the rate becomes a true variable rate – subject to the
whims of the market. However, there’s usually a cap or interest rate ceiling to protect the
consumers from excessive index rate increases.
According to Payment Terms
Interest-only mortgage refinance loan: This type of mortgage refinance is one where you
will be asked to pay only the interest for a certain period of time. After the set interest-
only payment period has passed, you will have to start making payments towards the
Balloon-type mortgage refinance loan: This type of refinance loan is one with an initially
low, fixed interest rate (the actual period varies from lender to lender but this period
doesn’t usually exceed 10 years). After the period for the low interest has passed,
however, full payment is required on loan balance.
Fully-amortizing mortgage refinance loan: This type of refinancing loan is one where
monthly payments are a combination of interest charges and payments towards the
balance. This type of loan is ideal for people who wish to add to their equity as well as
reduce the balance with every payment.
Home equity mortgage refinance loan: This type of loan is one where you actually apply
for a loan using the equity you have stored in your home as your security for the loan. In
this case, you give up your equity for money which you can get as outright cash or as a
revolving credit line. Such a loan usually has a very good interest rate. However, this
type of loan is ideal for mortgage refinancing ONLY if you have enough equity in your
home to pay off your original mortgage lender. This can happen if your home has
appreciated considerably. If you don’t have enough equity to pay off your original
lender, you will only be taking on a second mortgage, not a refinancing loan.