Refinance Your Mortgage

To refinance, or not to refinance – that is the question. If you’re new to refinancing, you might be unsure whether it’s the best option for your needs. How does refinancing work, anyway? And with so many refinance options available, how do you choose the right loan structure?

If these questions sound familiar, don’t worry. At Mortgage Mark, we’re all about making home loans less stressful. Here’s an overview of mortgage refinancing and how to choose between the different options.

Refinance Mortgage Meaning

What is mortgage refinancing? Let’s provide a simple definition.

When you refinance, you’re simply switching your existing loan for a different mortgage loan with new terms. In other words, you’re “redoing” your home loan financing.

  • Refinancing does not mean altering your existing home loan. It means taking out an entirely new home loan.
  • You can stay with the same lender or choose a new one.
  • Mortgage refinances work pretty much the same as regular mortgages. The process is almost identical.

What Is the Purpose of Refinancing?

There are a few reasons why you might refinance your home. Here are some common reasons.

  • Release home equity: If you have equity in your home, refinancing lets you access this cash. You can then use the money for a specific purpose e.g. pay down debt.
  • Reduce the mortgage balance: You can refinance to actually put extra money towards your mortgage debt. This helps you clear the balance faster.
  • Change the loan terms: Refinancing may let you access better interest rates and payment terms. For example, if your credit has improved since you got a home loan, you might refinance to reduce your interest rates.

Refinancing gives you more control over your home loan. In some cases, it can even help you reduce your monthly mortgage payments.

Does Refinancing Hurt Your Credit Score?

It depends. When you apply for credit, your score takes a temporary hit. If you make your monthly mortgage payments on time, your score rises again. It might even improve.

On the other hand, your score will drop if you don’t keep up your payments. This is the same as with any other financial product. So, refinancing could affect your credit score in the long-term if you’re not careful.

Types of Refinance Mortgages

There’s more than one type of refinance mortgage. The loan you choose depends on why you want to refinance. For example, someone looking for lower interest rates may choose a different loan than someone trying to free up equity.

Rate and Term Refinances

Rate and Term loans let you:

  • Lower the interest rate.
  • Lower the monthly payment.
  • Change the loan term.

For example, say you want to shorten the loan term from 30 years to 15 years. Rate and term refinancing might work for you.

Check out our Refinance Mortgage Calculator.

Types of Cash Out Home Loans

Cash out home loans are another type of refinance mortgage. They let you release equity and convert it into cash.

  • You normally replace an existing home loan with a larger loan.
  • This means that you’re borrowing more than you owe.
  • You get the difference between both loans as a cash value. This is the equity in your home.

Texas Home Equity A6 Cash Out Refinance

Agency Cash Outs: Agency Cash Outs are when you refinance an existing first and second lien BUT that second lien is a non-purchase second (i.e. that second lien was not originally used to buy the home).

Example: Someone buys a home with a $300,000 loan. A year later, they decide to get a $30,000 home improvement second lien to put in a pool.

Finally, let’s assume two years after the pool the rates drop. You want to refinance and combine both loans into a single mortgage. The new single mortgage is considered an “Agency Cash Out”. This is different from a Texas A6 cash out.

  • Pay off debts
  • Pay for school tuition
  • Build up asset reserves
  • Purchase another home

Myths: It’s not worth it if it’s not .5% or more? As with anything, it depends on your circumstances. There’s no right answer.

No Costs vs. Nothing Due

There’s a difference between a no cost loan and a “nothing due” at closing.

No costs means there aren’t any costs for this loan – i.e. no fees are paid at closing. No costs are rolled into the loan. <<< watch for stuff getting rolled into the loan. >>>>

Is it a Good Idea to Refinance a Home?

Sometimes. But in fact, there are cases where someone should NOT refinance even if they can lower their rate.

The main reason is that the loan amount is so small that a big reduction in rate doesn’t equate to big enough savings. The reason is because of the fixed costs of a loan – a $40,000 loan has most of the same costs as a $400,000.

Texas Home Equity Loans

12-Day Letter for Texas Home Equity Loans: There are rules to follow when you take out a home loan or refinance an existing loan. . Be sure you know these rules before starting the process.

Cash Out Loans

Texas Cash Out home loans are unique because Texas is the only state that has its own (more restrictive) laws for equity loans. The technical term is a “Texas A6”; the article of the Texas Constitution that outlines the parameters.

Texas A6 equity loans can be done as “normal” first liens or as a second liens. Interest rates for cash out loans in Texas typically have .125% to .25% higher interest rate than a “normal” rate and term refinance. There can only be one A6 loan on a home.

Texas A6 Cash Out

As mentioned, a Texas A6 cash out home loan is unique and has its own set of guidelines. The most prevalent is that LTV is limited to 80% of the home’s value. Another nuance is that an A6 can’t be refinanced for one year after closing. There is a 3% cap on closing costs which creates challenges on smaller loan amounts.

Example: If there are $3,000 of fixed costs in a loan PLUS a title policy, and someone wants a $100,000 cash out loan amount, the lender will either have to “eat” the title policy (which could be $800-$900) and therefore increase the interest rate to the consumer to recoup those costs. See all the guidelines on the Texas 12-day Letter.


A Home Equity Line of Credit (HELOC) is typically done by banks. They are second liens with variable rates (ex: Prime + .5% up to 2%). The costs are typically $500 + Appraisal ($500).

Example: Say there’s a 20 year loan term but the first 10 years are interest only payments. The line is only available for the first 10 years. This is a good option for money that’s needed for the short-term (i.e. few years).

This is also a great financial safety net. A zero balance means zero payment so it’s a handy lifeline when needed.

FYI, HELOCs are limited to 50% of the home’s value and very few banks will go above $150-200k. There are a few banks that will offer up to $500k. Call your favorite lender with a Financial Advisers Mortgage Cheat Sheet to discuss.

Second Lien Cash Out (A6)

A second lien cash out home loans are done by banks. Like HELOC the costs are minimal, but unlike HELOCs these are fixed rate mortgages. The rates can be 1.5% to 3.5% points higher than a “normal” first lien mortgage depending on credit and amortization schedule.

Most banks will offer terms in five year increments starting at 5 years and going up to 20 years. In rare cases some banks will offer a 30 year fixed.

Learn More About the Types of Refinancing Options

Want to learn more about the types of refinance mortgages? Or are you looking to apply for a home loan? Mortgage Mark can help. Apply now or call 972-829-8639 to schedule a meeting.

Mark Pfeiffer

Branch Manager
Loan Officer, NMLS # 729612

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