I understand the price of the home has gone up since the purchase so there’s let’s say $30k in equity. How are they entitled to this $30k just magically? Does their mortgage balance increase too kind of like they took a loan out?
In: Economics
You can think of it a little bit like selling your house to yourself.
Bank 1 has a 200k mortgage on your house.
You refinance with Bank 2, who will lend you 250k to buy your house. You borrow 250k, use 200k to pay out the Bank 1 mortgage, and now you have 50k in cash, and a $250k mortgage instead.
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