What is a Refinance?

A refinance loan (refi) pays off an existing mortgage using the subject property as collateral.

There are many reasons why someone would want to refinance their loan.

One of which would be to change the rate and term and the other would be to take cash out from the equity of their property.

Rate and Term Refinance

A rate and term (R/T) refinance loan is just about the same size as the loan it replaces.

Rate and term refi’s are designed to either lower your interest rate or adjust your loan term.

In order to decide whether a refi is worthwhile, the savings must be weighed against the costs associated with refinancing.

For example, if the refi costs you $2,600 and you are saving $260/month, then you are looking at 10 months to recover your investment.

As long as you plan to live in the house longer than 10 months, the refi would be a smart choice.

Cash-out Refinance

A cash-out refinance, better known as a “cash out refi” is a mortgage which replaces your current loan with a larger one.

This enables you to tap into your homes equity, and convert it into cash.

This cash can be used for any purpose, but it is typically used for home improvements or to consolidate debt.

FHA Streamline

The FHA has a great refi program called the FHA Streamline.

This program has some great features that make the refi affordable and easy to qualify for.

An appraisal is not needed and there is limited income and asset verification.

Depending on the lender overlays, you may not have to provide pay stubs, bank statements, or 1040s.

No Cost – No Fee

A no cost or no fee refi is a loan that cost the borrower nothing to complete.

These types of loans often make it a no contest for the borrower to apply for the refi because there is nothing for them to lose.

If the rates drop again several months later, the borrower could be eligible to apply for another no cost refi.


A subordination clause allows the borrower to refinance the first mortgage when there are two loans on the property.

The second lien holder must agree to “subordinate,” or to put their loan after the first loan.

This allows you to modify your first mortgage, without affecting the second.

Lien holders for second mortgages are generally adverse to subordinating their loans, unless the refi is to lower your monthly payment.

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