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?
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I find this might be easier to understand with numbers. Let’s say you buy a beautiful new home for $500,000 and you get a 6% interest rate. You live there for a few years paying off this mortgage and eventually your %owned vs %financed changes to the point where instead of owning maybe 5% of the house when you start, you later own 40% and your loan is now only for 60%.
You can talk to your bank or another bank and say I have 200k in equity( 40% portion you own) but I want to buy another property that’s $100,000. The bank says thats great we can offer you a new $400,000 loan at 4%. So your original loan is only $300,000 at this point with a higher interest rate. The new loan pays that loan off and you have the cash to spare and a lower rate.
You can also do this with a home owners line of credit which is basically the same principle but instead of changing loan terms your just borrowing against the equity on your part of the house.
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