Individuals who have obtained an FHA mortgage loan have lives like anyone else. These lives can change in subtle and dramatic ways, both financially and personally. Sometimes these changes, as well as changes in the mortgage loan market, may result in the desire to refinance one’s FHA mortgage loan. A mortgage refinance essentially involves acquiring another mortgage to replace an existing one. There are two main types of FHA refinances, “regular” and “streamline.” Each type has a different purpose and process that borrowers must go through.
There are many reasons for getting a regular FHA refinance, including paying off an existing mortgage, dealing with a divorce or property settlement, and utilizing the “cash out” option. The regular refinance can be used to pay off any existing mortgage, whether it is conventional, VA or FHA. Additionally, a “cash-out” refinance can be used when the borrower wishes to borrow against their house and take out a portion of their home’s equity in cash. That cash can then be used to pay off debts or finance any other expenses.
An FHA “streamline” refinance can be used to reduce the principal or interest payments, add or delete individuals from the title, change to a loan with a different term (shorter or longer) or change to a fixed rate or adjustable rate mortgage. In regards to the last example, if a borrower wishes to switch to a loan with a steady payment amount, month after month, then they may want to switch to fixed rate mortgage. Conversely, if the borrower’s fixed rate monthly mortgage payment is too high, they may want to temporarily switch to an adjustable rate mortgage, depending on the state of the mortgage loan market. Another option for a person in this situation would be to refinance to a loan with a longer term, in which the monthly payments would also go down. It should be noted that no cash can be taken out on “streamline” mortgage refinances.
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