Important Terms To Know When Refinancing Your Mortgage
Posted on: 21 September 2021
Refinancing a mortgage is not an event one should rush into, mainly because it is a significant process to use. If you have never done this before, you might wonder how it works. One of the best ways to learn how it works and understand the process is by learning some important terms you might encounter when refinancing. Here are some important terms you should know if you want to refinance your loan.
Private Mortgage Insurance
The first term to know is private mortgage insurance (PMI). PMI is an extra fee you must pay with certain loan types, but you typically only pay it if you borrow more than 80% of a home's value. If you borrow less than this, you typically have enough equity in the home loan to cancel this requirement. Some loan types, such as FHA loans and VA loans, do not require PMI. PMI is typically present with conventional loans. If you want to avoid it, you must borrow less than 80% of your home's value through your home mortgage refinance. PMI protects the lender instead of you if you ever default on the mortgage.
Closing Costs
The second term to understand is closing costs. Closing costs is a general term that refers to the expenses of getting a loan. If you get a new loan or refinance, you will pay closing costs. Lenders charge different amounts for closing costs, but they all charge something. If you want to save money, you can ask several lenders for a statement that shows how much they charge for these necessary costs when refinancing your loan.
Cash-Out Refinance
Next, you might want to learn what a cash-out refinance option is. When you refinance, you can either refinance for the amount you owe plus the closing costs or more. If you want cash out of the deal, you will need to use a cash-out refinance service. With this option, you get a new loan for the amount you owed on your loan, the fees, and the cash you took when refinancing.
Points
One last term to understand when refinancing is points. A point is something you purchase from the lender to get a lower interest rate. You do not have to buy points, but you can if you wish. You can purchase just one point or multiple points.
If you have questions about refinancing your home mortgage, talk to a lender to learn more about your options and the requirements. Reach out to a home mortgage refinance service to learn more.
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