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

Think of it this way, when you refinance you essentially sell your house to the bank and then take out a new loan to buy it back using better rates. To be clear, this is NOT what is actually happening but an easy way to think about it.