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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When you refinance a mortgage, you’re just paying off the previous mortgage and getting a new one. Sort of like if you sold your house and paid back the mortgage, and bought a new house with a new mortgage, but you’re not moving. The new mortgage lender pays the old lender your balance, and then your balance is with the new lender.
So Bank A gave you a mortgage for $300k at 5% interest when you bought your house 5 years ago, paying $360k for the house (and putting 20% down). Now, you see rates are 3% which would save you a ton in interest. Your current balance on that first loan is now down to $270k, so your new lender pays the old lender $270k to pay off that loan, and now you start a new $270k loan at 3% with the new lender.
Now let’s say your home has jumped in value to $600k. So your $270k loan would be less than half the home’s value. But you can easily borrow up to 80% of the home’s value on the new mortgage, which in your case would be $480k. Since only $270k needed to go to the old lender, you could pull out up to $210k and use that as a down payment on a rental property, home remodeling, etc. So maybe you decide to take out $100k, increase your mortgage balance to $370k and use half to remodel your kitchen and half as down payment on a $200k rental home.
With the lower rate, even the higher mortgage is still about the same monthly payment as before, and the rent on the other house covers the mortgage there.
if you owe 25k on your home, but it’s worth 200k, you can get a loan for 150k. take that 150k in cash and buy another home. now you own 2 homes, but only pay 1 mortgage payment.
also, being able to offer CASH on a home is preferable to the seller, so you can probably get a better price. you can close within a few days if you want instead of a month with a bank. it’s just all around way easier for both parties when the deal is done in cash rather than going though a bank.
it’s slightly more complicated, because there are fees and appraisals and tons of paperwork, but i literally did this a few years ago and that’s exactly how it went.
if you owe 25k on your home, but it’s worth 200k, you can get a loan for 150k. take that 150k in cash and buy another home. now you own 2 homes, but only pay 1 mortgage payment.
also, being able to offer CASH on a home is preferable to the seller, so you can probably get a better price. you can close within a few days if you want instead of a month with a bank. it’s just all around way easier for both parties when the deal is done in cash rather than going though a bank.
it’s slightly more complicated, because there are fees and appraisals and tons of paperwork, but i literally did this a few years ago and that’s exactly how it went.
if you owe 25k on your home, but it’s worth 200k, you can get a loan for 150k. take that 150k in cash and buy another home. now you own 2 homes, but only pay 1 mortgage payment.
also, being able to offer CASH on a home is preferable to the seller, so you can probably get a better price. you can close within a few days if you want instead of a month with a bank. it’s just all around way easier for both parties when the deal is done in cash rather than going though a bank.
it’s slightly more complicated, because there are fees and appraisals and tons of paperwork, but i literally did this a few years ago and that’s exactly how it went.
You owe your friend Jon a 100 bucks. You need to pay him 11 dollars a month for 10 months. He gets 10 dollars from the whole deal.
Let say a month pass and you now owe Jon only 90 dollars because you’ve already paid him last month. Jessi saw this and made you an offer. “Hey I can lend you 90 dollars and you only have to pay her 10.50 dollars a month for 9 months.”
You take the offer. Take the 90 dollars from Jessi and give it to Jon. You now no longer owe Jon money, but now you’re in debt with Jessi. Your monthly payment is 50 cents less and you still have only 9 months left. Jessi pocket 4.5 dollars from the deal.
Let say another month passed and now you own Jessi 80 dollars. However, you only have 7 dollars a month to pay your debt. So Brit heard this and offer you 80 dollars. you only have to pay her 7 dollars a month, but for 15 months long.
Your monthly payment is lower now, but you’ll end up paying 105 by the end of the deal. Brit pocket 25 dollars.
You owe your friend Jon a 100 bucks. You need to pay him 11 dollars a month for 10 months. He gets 10 dollars from the whole deal.
Let say a month pass and you now owe Jon only 90 dollars because you’ve already paid him last month. Jessi saw this and made you an offer. “Hey I can lend you 90 dollars and you only have to pay her 10.50 dollars a month for 9 months.”
You take the offer. Take the 90 dollars from Jessi and give it to Jon. You now no longer owe Jon money, but now you’re in debt with Jessi. Your monthly payment is 50 cents less and you still have only 9 months left. Jessi pocket 4.5 dollars from the deal.
Let say another month passed and now you own Jessi 80 dollars. However, you only have 7 dollars a month to pay your debt. So Brit heard this and offer you 80 dollars. you only have to pay her 7 dollars a month, but for 15 months long.
Your monthly payment is lower now, but you’ll end up paying 105 by the end of the deal. Brit pocket 25 dollars.
You owe your friend Jon a 100 bucks. You need to pay him 11 dollars a month for 10 months. He gets 10 dollars from the whole deal.
Let say a month pass and you now owe Jon only 90 dollars because you’ve already paid him last month. Jessi saw this and made you an offer. “Hey I can lend you 90 dollars and you only have to pay her 10.50 dollars a month for 9 months.”
You take the offer. Take the 90 dollars from Jessi and give it to Jon. You now no longer owe Jon money, but now you’re in debt with Jessi. Your monthly payment is 50 cents less and you still have only 9 months left. Jessi pocket 4.5 dollars from the deal.
Let say another month passed and now you own Jessi 80 dollars. However, you only have 7 dollars a month to pay your debt. So Brit heard this and offer you 80 dollars. you only have to pay her 7 dollars a month, but for 15 months long.
Your monthly payment is lower now, but you’ll end up paying 105 by the end of the deal. Brit pocket 25 dollars.
You have an existing mortgage
You ask a lender to refinance your mortgage at a better rate.
Lender pays off your mortgage and now you have a new mortgage with the new lender. It could also be your existing lender.
You have an existing mortgage
You ask a lender to refinance your mortgage at a better rate.
Lender pays off your mortgage and now you have a new mortgage with the new lender. It could also be your existing lender.
You have an existing mortgage
You ask a lender to refinance your mortgage at a better rate.
Lender pays off your mortgage and now you have a new mortgage with the new lender. It could also be your existing lender.
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