Types of Refinancing
1. Mortgage Refinance: It is a refinancing where an owner of a house replaces the existing mortgage with a new mortgage. The foremost objective of doing mortgage refinancing is to take advantage of lower interest rates. Mortgage refinancing often involves making a check on the credit of the borrower. A higher credit score can help borrowers qualify for better interest rates and terms. The mortgage refinancing further has the following types of refinancing.
- Rate and Term Refinancing: This is one of the kinds of mortgage refinance that mainly focuses on getting a new loan with better interest rates and terms of the existing loan.
- Cash-In Refinancing: Cash-in refinance is used by the borrower to reduce the outstanding loan amount and decrease the loan-to-value ratio by making a cash payment at the time of refinancing.
- Cash-Out Refinancing: Cash-out refinance is a method where a person borrows a new loan more than the amount of an existing loan and the difference between the new and existing loan is received by the borrower in cash.
2. Auto-Loan Refinancing: The main idea of auto-loan refinancing is to replace an existing auto loan with a new one with better interest rates. This kind of refinancing is generally practised by owners of vehicles to change the debt obligations which is attached to their vehicles.
3. Business Loan Refinancing: Business loan refinancing is used to exchange the existing business loan with a new loan. By using this method companies get advantages like lower interest rates and improvement in the credit score. It also allows businesses to access additional capital by borrowing more than the existing loan balance. Companies may use this amount to expand, purchase inventory, pay off other debt, or other business needs.
4. Consolidation Refinance: Consolidation refinance is a financial strategy in which a borrower combines multiple loans into one single loan with the process of refinancing. It simplifies the monthly payment of instalments of loans and can result in overall interest savings.
5. Personal Refinance: Personal refinance involves removing the existing personal loan by raising a new one. Individuals with multiple personal loans or high-interest debts may choose to consolidate their debts by refinancing into a single personal loan. It is a strategy used by people to improve financial well-being.