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, divorce or property settlement, or utilizing the “cash-out” option. The regular refinance can be used to pay off an 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 debt or finance other purchases.
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 borrower in this situation would be to refinance to a loan with a longer term, in which the monthly payments would also go down. No cash can be taken out on “streamline” mortgage refinances.