What Is a Straight Refinance?

Refinancing Basics

• A mortgage refinance is a common financial maneuver used by homeowners to put themselves in a better financial or investment position. As noted, lower interest rates or reduced monthly payments are common reasons to refinance your loan. Other people use a refinance to take equity out of the home or go with a mortgage modification, where the loan is rewritten to reduce the costs of refinancing. Closing costs on a straight refinance are usually like those on an original loan.
  
  

Process

• Straight refinances are popular when mortgage rates are on a downward trend. Homeowners who bought when loan rates were higher often take advantage of the chance to get in on a lower rate. Some banks contact existing borrowers about refinancing to avoid the risk of losing them to another bank with a refinance offer. Typically, unless your bank offers an expedited streamline refinance, you must submit an application to lock in a rate and have your refinance request considered. After initial review, your application and supporting documents are sent to underwriting, where the loan is completed and documents prepared for closing. At closing, your new loan takes over and any additional closing costs are paid.
  
  

Advantages

• A straight refinance is typically the simplest and safest approach to refinancing. You compare the benefits of refinancing to a better rate and payment against the closing costs. Some people also refinance to shorter payoff periods to more quickly build equity in the home. In general, though, a lower interest rate and reduced monthly payments are strong long-term benefits of a straight refinance.
  
  

Drawbacks

• A straight refinance does not offer some of the financial flexibility of other types of cash-out mortgages or mortgage modifications. With a cash-out refinance, you can take on a second loan as part of the refinance and borrow against your home's equity. This is valuable for people who want a low rate because they're planning a startup business, a new home renovation or another major investment. Mortgage modifications allow less costly changes and simple rewrites of original terms. With typical straight refinances, you have to go through the same loan process as with your original loan.