Am I the only one who doesn’t understand how mortgage refinancing works? I’m having trouble understanding how a loan instrument can be used to purchase more properties or even negotiate better rates.

Question

How are these advantages possible AFTER a mortgage has been signed? Help needed as I’m trying to wrap my head around financial mechanisms – why is this a thing and under what circumstances/ conditions does a refinancing make the most sense to use?

In: 293

Answer 1

You owe your friend Jon a 100 bucks. You need to pay him 11 dollars a month for 10 months. He gets 10 dollars from the whole deal.

Let say a month pass and you now owe Jon only 90 dollars because you’ve already paid him last month. Jessi saw this and made you an offer. “Hey I can lend you 90 dollars and you only have to pay her 10.50 dollars a month for 9 months.”

You take the offer. Take the 90 dollars from Jessi and give it to Jon. You now no longer owe Jon money, but now you’re in debt with Jessi. Your monthly payment is 50 cents less and you still have only 9 months left. Jessi pocket 4.5 dollars from the deal.

Let say another month passed and now you own Jessi 80 dollars. However, you only have 7 dollars a month to pay your debt. So Brit heard this and offer you 80 dollars. you only have to pay her 7 dollars a month, but for 15 months long.

Your monthly payment is lower now, but you’ll end up paying 105 by the end of the deal. Brit pocket 25 dollars.