My parents recently suggested I refinance my home to help with some of my debt, but how does that help/work?
I bought my house in 2020 for roughly 275,000 its current market value is close to 400,000. From my understanding I can use the difference in value to help pay for the loan, but how exactly does that work? And how do I go about it?
In: Economics
Refinancing literally means to redo the financing. Usually on a house or a car.
Let’s say you got a 30yr mortgage at 8%, then 5yrs later you qualify for a better interest rate of 5% (either your credit score and/or the economy is better), you pay a refinancing fee (either upfront or rolled into the mortgage) and now your remaining payments are at 5% interest instead of 8% which means lower monthly payments and less interest paid.
Now, many times refinancing also recasts/reforecasts, so in the above scenario it restarts the 30yr clock so a total of 35yrs (you could maintain you previous monthly payments to pay off early).
The main thing to consider is what the refinancing fee will be and what interest rate will you get. Interest rates are higher than they were 2 years ago, when I bought, so it’d be foolish to refinance (I’d hope the bank would even stop me from doing so).
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