Refi is short for refinancing, obtaining financing through a new mortgage loan to pay off an existing one. There are two types: straight refi and cash-out refi. Refinancing should benefit the borrower and lenders should present financially favorable options.
Refi is a commonly used term in the mortgage banking industry. Refi is simply short for refinancing. A refi is obtaining financing through a new mortgage loan for the purpose of paying off an existing mortgage loan. While there are many ways to go about refiring, there are two basic types and the reasons for refinancing depend on your individual financial situations.
A straight refi is the most common refinancing situation. A direct refi means that a borrower is refinancing only the exact amount they owe on an existing mortgage. Often people do this to change the terms of the mortgage loan or the interest rate. A refi that carries an interest rate that is lower than a homeowner’s current interest rate saves the homeowner money over the course of the loan and sometimes reduces his or her monthly payment. People sometimes go with a refi to extend the terms of their loan, which can also lower the monthly payments, but this is a situation that should be avoided whenever possible, unless the interest rate can be simultaneously reduced.
A cash-out refi is another common refinance. A cash-out refi means borrowing more than the amount your home is currently worth, up to an allowable maximum. The cash-out refi differs from a direct refi in that the homeowner is not only borrowing the amount owed on an outstanding mortgage, but also against the home’s equity. People could use a ransom to pay for college, make home improvements, or consolidate debt. The last option is usually not recommended and should be pursued with caution and under the advice of a financial planner or adviser.
The conditions for approving a refi are slightly different from those for a purchase loan. Most lenders will not allow a homeowner to refinance 100% of the home’s value. Offers from lenders that allow refinancing based on 100% or more of the home’s value should be scrutinized carefully, and you should never borrow more than the home’s actual market value.
A refi, cash-out or straight, should benefit the borrower by lowering his mortgage interest or providing access to principal at a lower interest rate than a conventional loan. A qualified lender will discuss your situation with you and present you with options that are financially in your favor. If the lender seems only interested in closing the loan, he looks for a different lender.
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