Question by Gabrielle’s Mommy: What does refinance a mortgage mean?
I want to know what these terms mean because we are about to get a house and i keep seeing things about refinancing a mortgage. Also, whats home equity?
Best answer:
Answer by Ray Uan A
it means to refinance a mortgage
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Refinancing is getting a new loan to replace a current one… at a better rate… or getting some of your equity back and starting to pay all over again… The new mortgage company pays off your loan with the old company and becomes the holder of your new mortgage.
Equity is your down payment and the amount of your mortgage you’ve paid off…. the amount of money you have in towards ownership.
The equity of a home is the value minus the loan amount. If you buy a house for $ 100,000 and have a mortgage amount of $ 80,000, you have $ 20,000 in equity (or more, if you are getting a good deal on the house).
Refinancing does not apply to you at this stage-it is, in essence, re-selling the house to yourself at a more favorable rate, and / or cashing out some of your equity. For instance,
say you bought a $ 100,000 home three years ago. You put 20% down and your interest rate on the mortgage was 7% fixed. Now you find that prices in your area have gone up (lucky you!) and interest rates have come down. You refinance at a lower rate and lower your monthly payments, or you refinance at a lower rate and at a greater amount, and receive the amount of your equity in cash at closing Note that this is not a great idea, unless you are using the money to pay off unsecured debt or make improvements to the house. Good luck in your new home!