What do you understand by the Term Refi?

Refi is a term that is commonly used in the mortgage banking industry. Refi is just a short form of refinance. A refi is formed by obtaining finance through a new mortgage loan in order to pay off an existing mortgage loan. Though to proceed with a refi there are numerous ways, there are two basic types, and the reasons for which a person choose to refinancing depends on individual financial situations.


Straight Refi

The most common refinancing situation is a straight refi. The meaning of a straight refi is that a borrower is only refinancing the exact amount he or she owes on an existing mortgage. Often, this is done by people to change either the terms of their mortgage loan or their interest rate.

If a lower interest rate is carried by the  refi than due to this as compared to a homeowner’s current interest rate then it saves the homeowner money over the course of the loan, and sometimes it also lowers his or her monthly payment. Sometimes people proceed with a refi in order to extend the terms of their loan, which may also lower monthly payments, but when possible this is such a situation that should be avoided, unless the interest rate can simultaneously be reduced.

Cash-Out Refi

Another common refinance is a cash-out refi. The meaning of a straight refi is that the borrower is borrowing more than the amount one’s home is currently worth, up to an allowed maximum. The difference between cash-out refi and a straight refi is that in cash-out refi the homeowner is not just borrowing the amount he or she owes on a current mortgage, but also borrowing against the equity in the home.

cash out Refinance

A cash out refi might be used by the people to pay for college, make home improvements, or consolidate debt. Usually the last option is not  recommended, and it should be attempted with caution and after taking advise from a financial planner or councilor.

Conditions for approval of a refi

The conditions for approval of a refi have a little difference from a purchase loan. A homeowner will not be allowed by Most lenders to refinance 100% of the home’s value. A homeowner should examine closely the offers by the lenders that allow refinancing based on 100% or more of the home’s value, and one should never try to borrow more than the home’s actual market value.

Benefits of Refi

A borrower should get benefits from a refi, either it is a cash-out or straight, it should benefit the borrower by lowering his or her mortgage interest or providing him access to equity at a lower interest rate than a conventional loan. If a lender is qualified then it will discuss your situation with you and present you with options that are financially in your favor. If it looks like that the lender only seems interested in closing the loan, then you should look for a different lender.

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