Refinances: There are two types of refinances:
- Rate and Term Refinance: This type of refinance replaces the existing loan of a property with a new mortgage loan. The proceeds from the refinance pay the old loan off and any incidental closing costs.
- Cash-Out Refinance: This type of refinance provides cash to the borrower from the loan proceeds. There are some restrictions to cash out refinances, such as loan-to-value restrictions and seasoning requirements. The criteria for cash out refinances can differ from lender to lender.
Escrow Reserve Account / Impounds: Under certain circumstances, lenders will require that an impound account be set up to pay the property taxes and hazard insurance. The impound account allows the lender to collect monthly funds that will be used to pay the annual taxes and insurance. Even if it is not required, many borrowers will request that the lender set up impounds as a convenient way to pay taxes and insurance. Generally, lenders will provide monthly payment coupons that break out the principal and interest payments as well as the impound amounts.
Zero Cost Loans: Over the past couple of years, lenders and brokers have provided mortgage loans that appear to have little or no closing costs. Though borrowers are not required to pay the closing costs as a cash outlay, the closing costs still exist and are financed through an increase in the interest rate.
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