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 take out a new loan with a better rate. You use the new loan to pay off the old loan. That’s it.

It’s like taking out a proper loan from a bank to pay off a high-interest credit card.

You can pay off loans early. People often don’t because they don’t have the money (that’s why they took out the loan). A “second mortgage” is the same idea but you get extra cash on top of it if the house has appreciated in value.