There are generally two types of refinance loans.  Cash-Out and No-Cash-Out. No-Cash-Out Refinance This loan is also referred to as a Rate/Term loan.  A borrower will choose to do a Rate/Term loan when interest rates suddenly drop.  Perhaps you bought your house when the going rate was 6.5% and have a 30-yr fixed rate that you have been paying on for the past 5 yrs.  Now interest rates are around 5.5% and you would enjoy a lower monthly payment but don't need any additional cash from your home's equity.  If this is the case, then a No-Cash-Out Refinance is in your best interest. VA Streamlines This is an amazing loan that is reserved for anyone with a current VA mortgage.  What makes this loan so great is that if you are current on your monthly mortgage payments and in most cases have not had any more than 2 reported 30-day lates on your mortgage, then your are eligible to LOWER YOUR INTEREST RATE without having to qualify for a new loan!  This loan is used primarily by VA homeowners that want to get rid of a current ARM or Variable mortgage that will be adjusting to a higher rate soon, or by someone that is able to drop their current fixed rate mortgage to a new lower rate and thus lower their monthly mortgage payments. A few of the unique and attractive features of the VA Streamile are:
  • No Appraisal needed
  • No income or employment verification
  • Credit score doesn't matter
  • Possibly skip 2 mortgage payments
  • Get a cash refund of any escrow balance with current lender
Cash-Out RefinanceThis loan is primarily used when you want to do home improvements or pay off high debts and you are willing to give up some equity in your property to do so.  Over time real estate will generally appreciate or go up in value.  The difference between what you owe on your mortgage and what your home will sell for is called equity.  The more equity you have, the more you can "cash-out".  Imagine you are paying for 2-3 credit cards each month, a car payment and also some student loans.  None of the interest you are paying on these debts is tax deductible and it is most likely revolving debt that compounds daily.  By doing a cash-out refinance you are able to greatly reduce your monthly payments on those debts, possibly receive a tax deduction*, and lower the amount of interest you are spending.  A cash-out refinance will usually require you to re-qualify for the loan much like you had to do when you bought the house.  The lender will want to make sure your home has sufficient equity in it and will determine this by getting an appraisal.  The Lender will also determine your ability to pay the new mortgage payments before qualifying you for the loan.  The only catch to the VA cashout loan is that you can only borrow 90% of your home's appraised value.  This means for example that if your home is worth $100,000 then you could only borrow $90,000 with a VA loan.  This is basically .90 X's your homes appraised value.  In larger loan amts some other restrictions may apply.  Consult with one of our approved lenders for details. *Consult your tax advisor, LowVARates is not qualified to give tax advise