Question by Suomynona: What is “refinancing”? Does refinancing mean paying off an existing mortgage and taking out another mortgage?
What does it mean in this context? The housing boom spurred economic activity because consumers refinanced at lower interest rates, allowing them to spend their savings from the lower interest rate.
Answer by Ambassador Z
“Refinancing” means that the balance of your mortgage owed will be reconfigured at the lower interest rate, but still due at the same day each month and paid off at the pre-agreed pay-off date.
No, it does not mean paying off an existing mortgage.
Add your own answer in the comments!
Refinancing always involves paying off the existing mortgage. Even if it’s the same company doing it both times, they have to pay off the original note to get the new note rate. If they just change the terms, that would be a “loan modification”.
Refinancing means the existing mortgage is paid off and a “new” mortgage is taken out. The old mortgage is replaced by the new mortgage. Usually this is done when you are getting a better interest rate. If it is a 1st mortgage then it will still be a 1st mortgage. Often with the housing boom, those consumers usually did not refinance adding money to the loan, just the balance of the loan.
Bingo! You answered your own question! Too bad you can’t give yourself the 10 points.
It ALWAYS means the original is paid off. The re-fi is generally at a lower rate.
It means the rapid increase in hosing values prompted homeowners to cash in on some of that equity by refinancing at the lower rates.
Here is some additional info. Hope this helps.
Sort of. You are correct about what refinancing means in the home loan context. You can get more information in a neutral site like http://www.refinance-and-loans.com/ . When interest rates go down you get a lot of refinance activity as homeowners reduce payments via refinancing their existing mortgage. Rising home prices also can spur some refinance activity by leading some home owners to use a refinance to increase debt, but also get some cash out of their equity build.