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What is Refinancing?

To refinance a loan means to replace an existing loan with a new loan. The new mortgage is used to pay off the old one, and the new principal and interest rate can differ from the old one.


Types of Refinancing

A borrower can refinance using a rate-and-term refinance or a cash-out refinance. In a rate-and-term refinance, the new mortgage loan usually has better interest rates, payments, or term lengths. In a cash-out refinance, the borrower may take out a larger loan than the old mortgage and receive the difference in cash.


Why Refinance?

There are several reasons to replace your old mortgage with a new one, including:

  • Making use of home equity

  • Getting a better interest rate

  • Getting lower monthly payment

  • Increasing or decreasing the term length given to pay off a mortgage

  • Removing or adding a party to the mortgage

  • Changing your mortgage type



All refinances will require the documents used for the original mortgage the borrower is trying to refinance.


Other requirements, such as credit score, home equity, and debt-to-income ratio, depend on the type of refinancing the borrowing is looking to get (cash-out or rate-and-term) and the type of mortgage they currently have and are looking to get. For example, refinancing a conventional loan usually has a minimum of 620, whereas FHA loans may be as low as 500. There may also be other requirements, such as borrowers looking for a cash-out refinance on a conventional, jumbo, or VA loan need to have their name on the title of the property for a minimum of six months, with exceptions. 


Refinancing is on a case-by-case basis, and Modern Capital Funding is ready to walk you through each step of your personal situation. Ask your lender about your requirements.

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