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Home Refinance Made Easy - Glossary Terms And Questions

When it comes to home refinance, you need to know the basics. Read these frequently asked questions and selected glossary terms to get a basic understanding of how it all works.

HOME REFINANCE FAQS

Do I need equity to refinance?

Most lenders require a 90% loan-to-value ratio in order to refinance. If you?ve owned your home for a few years and property values have risen, you may have more equity than you think. Even in falling markets, you may have enough equity to qualify.

Can I refinance if I have bad credit?

Although you may receive a higher interest rate if your credit is poor, the main concern is whether or not you have equity and a stable income. If you do, you can find a home mortgage refinance loan even with bad credit.

Can I use cash-out refinancing to pay bills?

After the previous mortgage is paid off, you can spend the proceeds on anything you want. Financial experts recommend using the money for something that will build value, such as college or home improvements. You can also use a refinance as a debt consolidation loan. Simply use the proceeds to pay off your other debts, leaving you with a single monthly payment.

HOME REFINANCE GLOSSARY TERMS

Adjustable Rate Mortgage (ARM): A mortgage in which the interest rate can rise or fall at specified periods, usually annually.

Annual Percentage Rate (APR): The total yearly cost of your payments, expressed as a percentage of the loan, once interest, points, and fees are factored into the loan.

First Mortgage: the primary mortgage on a property. In some cases, multiple mortgages are obtained to purchase property. Regarding repayment of multiple mortgages, the lender with the first mortgage is paid first.

Fixed Rate Mortgage: A mortgage in which the interest rate will never change.

Home Equity Line of Credit (HELOC): A rotating line of credit that borrows against the equity in your home. Funds can be borrowed at any time, in variable amounts, and repaid with interest over time.

Home Equity Line of Credit: a credit line secured by a second deed of trust on a house. These revolving lines of credit work like a credit card, which can be paid down or charged up for the term of the loan. The minimum payment due is interest.

Home Equity Loan: A loan for a fixed amount of money that uses the equity in the home as collateral. It is repaid with interest over time.

Loan to Value Ratio: The difference between the loan balance and the value of the home.

Points: Fees paid at the time of closing to reduce the loan?s interest rate. One point equals 1% of the value of the loan.

Prepayment Penalty: A penalty that is assessed if the loan is refinanced or paid off early. Typically the penalty expires after a certain number of payments are made.

Refinance (Refi): paying off one loan through the means of obtaining another; refinancing is a way to secure a lower interest rate.

Refinancing (Refi): The process of paying off a previous mortgage or mortgages and replacing them with a single new loan.

Second Mortgage: A mortgage now more commonly referred to as a home equity loan.

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