Refinance Terms
Are you refinancing your mortgage and confused by the industry jargon? Here's help translating the lingo:
Types of Refinance Mortgages
Rate/term refinance. This type of refinance changes the interest rate and/or the length of the mortgage. Because of the variability of interest rates, any time you refinance you will change the interest rate (and therefore the payment). As for the term, let’s say you’ve been in a 30-year mortgage for five years. There are 25 years left on your term. You can refinance into a new 30-year mortgage, which lengthens the term from 25 years to 30 years, which may lower your payment.
Cash-out refinance. This type of refinance will result in a new mortgage that, in addition to changing the interest rate and possibly the term, also changes the principal - the amount you still owe on your home, not including interest. ‘Cash-out’ refers to refinancing into a new mortgage for more than you currently owe, so you can take out the difference in cash.
Types of Mortgages
Fixed-rate mortgage. With this type of mortgage the interest rate and payment will never change for as long as you keep your mortgage.
Adjustable-rate mortgage (ARM). Here, the interest rate changes – monthly or annually, depending on the loan. There are many different types of adjustable-rate mortgages: including ARMs where you only pay the interest on your loan (and don’t reduce the principal), and ARMs with initial periods of fixed interest, usually ranging between one and ten years.
Interest Rate Terms
Interest rate vs. Annual Percentage Rate (APR). Interest rate is the percent of the loan amount the lender charges you to borrow money. APR calculates all the costs of the loan (closing costs, discount points and other upfront fees – more on these terms below) and expresses them as an annual percentage of the loan amount. APR is a truer expression of the cost of the loan than the interest rate is.
Points. This is a confusing term, because mortgage professionals use it in many different contexts. When used in the context of interest rate, it means
Get Started Now!
- Check Your Credit Report & Credit Score now!
- Start a Loan Request
- Sign up for our News Feeds
- Have Questions? Call 1-800-GET-SMART (1-800-438-7627)
