Types of mortgages to refinance into that can help.

Refinancing is when a homeowner applies for another mortgage in order to pay off a current mortgage that is at a higher interest rate. If the original loan had a higher interest rate, then you get help with paying your mortgage debt by refinancing into a loan with a lower interest rate.

30-year fixed rate mortgage

This traditional mortgage still remains a favorite of borrowers, and the recent housing crisis and mortgage issues have helped reinforce the importance of a fixed mortgage. Although the interest rate you need to pay is generally higher than the starting rates on other mortgage types, the amount you are responsible for paying and your interest rate will remain fixed for a full 30 years with this type of mortgage loan, and that's a help to planning your long-term finances.

 

 

 

A variety on this type of mortgage is the fixed-rate loan that has a term of 15 or 20 years. The required monthly payments on these mortgages will be higher than on a 30-year fixed loan, but you will build home equity faster and, in the long term, will be paying much less in interest, so they help you save on mortgage debt. Most lenders will also allow you to prepay the principal on a 30-year loan, which can help you retire the mortgage debt earlier. Some lenders will also offer 40-year term mortgages, which will lower the monthly mortgage bill, but the length of these stretches out your indebtedness significantly and it will also increase the total amount you will have been paying on interest. So it can help lower your monthly mortgage payments, but in the long term, you are responsible for paying more on your loan.

One-year adjustable-rate mortgage, or ARM, mortgage

This is the original version of the adjustable rate mortgage, and it is commonly referred to as an ARM.

A one-year ARM has a 30-year length, but your interest rate, and the amount you need to pay, will adjust every year. The interest rate will be determined by the financial index that your mortgage loan is pegged to, which is typically a one-year Treasury rates or the LIBOR index (which is an acronym for the London Interbank Offered Rate) or the COFI index (which is the Federal Reserve Cost of Funds Index). The COFI and LIBOR indexes are also frequently used for other mortgages that adjust their interest rates more often than once a year.

 

FHA mortgage

These type of loans are insured by the federal government through mortgage insurance. The federal government is allowing people to refinance into these loans. While a refi is allowed, it is usually the case that first-time home buyers are ideal candidates for an FHA loan. The reason being because the down payment requirements are minimal, credit ratings are not as important, and FICO scores do not matter when the mortgage is approved.