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

Refinancing is pretty simple.

Think of it like borrowing money from Paul to pay Peter, because Paul gives you better rates. except you can often do it with the same institution because their rates are dynamic.

So for instance, we refinanced here recently because the interest rates were so low. We used the same Credit Union, and halved our interest rate (4ish% > 2%ish), and were able to reduce our mortgage term to 20years from 30years, and keep basically the same payment.