Unlock Your Home Equity And Save Thousands With These Smart Mortgage Strategies

There are a few different kinds of loan that fall under the category of ‘home loans’. Here’s our rundown of the different kind of home loans that exist.

Mortgages

A mortgage is a the big daddy of home loans. There are variables when it comes to the type of repayment option that you can choose. There are fixed-rate mortgages and adjustable-rate mortgages. If you select a fixed-rate mortgage, the interest rate is fixed for the lifetime of your mortgage whether the interest rate index goes up or down, and your monthly mortgage payments will reduce over time but will never rise. With an adjustable-rate mortgage the rate is fixed for the first few years (usually 3 or 5 years) and then after that it will track with the market index (with some caps to prevent enormous fluctuations). If you have special requirements there are also government backed VA loans for American veterans, and mortgages insured by the Federal Housing Administration for borrowers who have low credit scores. It is worth taking time to research what the cheapest mortgage option for you will be in the short and long term.

Refinance Mortgages

A refinance mortgage is a mortgage designed for a homeowner who has built up some equity in their property already. People often use refinance mortgages to lower their monthly mortgage payments, consolidate other debt that they may have, or to take a lump sum of cash out of their home for a major purchase or product (or even to assist with the cost of college education for their kids). A refinance mortgage is really a completely new mortgage, and the funds lent by the bank or lender are use to pay off the original mortgage whilst releasing a lump sum of money from the equity the homeowner has built in their home. It still requires monthly mortgage payments but these mortgage payments will be at a lower rate of interest so the borrower effectively reduces the cost of borrowing. Refinance mortgages are offered with both fixed and adjustable interest rates.

Cash-out refinance loan

Not technically a home loan but nonetheless a loan that is secured against equity in the homeowner’s property, a cash-out refinance loan is taken in addition to any existing mortgage under a totally separate mortgage agreement. Rather than receiving the home equity you have released in a lump sum, it is extended as a line of credit that you can draw against. The interest can be a fixed rate or a variable rate. A cash-out refinance loan will not bear any closing costs, but generally speaking refinance mortgages are the cheaper of these two home loan options in the long run.