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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ELI5: you buy a house and the value of the property increases over time. That means that you own the difference between what you still owe on the current mortgage and the value of the property. So if your current mortgage is 100 thousand and the house is now worth 200 thousand you have 100 thousand that is yours. Another way to say it is that you have 100 thousand in equity. You can use a portion of that 100 thousand equity as a down payment on another house. You access the down payment money by taking out a loan on the house you currently own. (There are different kinds of loans you can take out, depending on the situation) You then apply for a loan on the new property. The question then becomes how do you pay for the loan on your new property. This depends on your income and whether the new property is a vacation home or rental property.
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