Types of Home Refinancing Loans

When you decide to home loan refinance, you'll need to decide on the type of loan that is best for you. Here are the major types of home refinancing loans and an explanation of each.

Fixed-Rate Mortgages

With a fixed-rate mortgage, your interest rate and monthly payment will remain the same for the life of the loan. Fixed-rate mortgages usually come with 15-year or 30-year terms, though some lenders offer additional options to home loan refinance customers. Here are the main pros and cons of a fixed-rate mortgage:

• Stable interest rate for life of the mortgage
• Consistent monthly payments without any fluctuation
• Protect against rising interest rates
• Fixed-rate home loan refinance is ideal when rates are low
• Initial monthly payments will be higher than those of an ARM

Adjustable-Rate Mortgages

An adjustable-rate mortgage (ARM) usually begins with an initial period of fixed payments, after which rates will adjust periodically for the remaining life of the loan. The payments and rates on an ARM will depend on market rate conditions. Here are some pros and cons to ARM home loan refinance:

• Initial rate is fixed (usually for period of 1-10 years) and will be lower than that of a fixed-rate mortgage
• Rates and payments will fluctuate after fixed period but are limited by adjustment caps
• The low initial rate makes ARM home loan refinance a wise option when interest rates are not especially low
• Fluctuating payments and rates can make it difficult to budget each month
• If interest rates are on the rise, an ARM is a risky option

Cash-Out Refinancing

Cash-out home loan refinance allows you to turn the equity in your home into cash. You can use this cash for major expenses or for debt consolidation. For instance, you might use cash-out home loan refinance for college costs, home renovations, or an investment in a second home.

Find out about out Home Loan Refinance process.