Question by Spike: Question about Refinancing your Mortgage…?
As I see it Refinancing your mortgage is pretty much lowering your monthly payment so you can have more cash back in your pocket every month. But what I found out is every time you Refinance you have to start paying for the house all over again, but with a lower monthly payment. Not to be a jerk or anything, but why the hell would you do that? I can’t see anything positive from doing that first of all because you actually LOSE money.. and second if your going to do that why did you buy a house that expensive in the first place? Just my point of view. If someone can give me a reason to not hate Refinancing your mortgage please tell me. I’d like to know both point of views. 😀
Answer by Peter B
Refinancing does not necessarily lower your payments.
When one first takes out a mortgage, it’s amortised (calculated) over a certain period – it used to be 25 years, but nowadays, I’ve seen them at 30, 35 and 40 years. I’ve also seen the period being 15 or 20 years. The calculation involves an interest rate, which is used to calculate a payment that will cover the interest and pay back the principle (the amount actually borrowed) in that time period.
So,each payment you make is part interest (you pay them for the use of their money) and part principle. As each payment goes in, the actual amount you owe goes down.
Refinancing happens because most of these loans are NOT for the full period, but for a shorter time,like 5 years. The reason for this is that interest rates go up and down, and the lender wants to make as much as possible. Anyways,when you refinance,you do so for the amount of principle you still owe (a lower amount than what you started with). You can borrow more (if the house value has gone up), but usually you just take enough to cover what you owe. So, you still have the house paid off in the time used in the calculation at the start.
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