can someone tell me how refinancing works? when you refinance, do you do it to lower your payments or?

Question

to just take money out? if u already have a low fixed interest rate. is it possible, if u wanted to refinance to take money out you could, and ud end up taking alot of money out, BUT , instead you end up paying more montly payments that you were before? if i did try to refinance and it ended up making my monthly payments higher....doesnt that defeat the purpose of refinance? or is the money i take out worth it? i owned the house for almost a year, fixed low rate, paying interest only, but someone told me i could still reifnance to take money out before i plan to sell so that money i get back will be tax free since i plan on selling really fast.

what about when you also have a low fixed rate, but ur house appreciates 5% or higher? how does refinancing work with that? i heared about people refinancing and they end up paying a higher monthly payment and that confused me?

plus when u refinance there MORE closing cost...is it really worth it?

Answer 1

When you purchased your home, you got financing via a mortgage loan. If you choose to replace or change that financing you are refinancing your home.

Refis are basically broken down into two types: rate/term and cash-out.

A rate/term refinance involves getting new financing that just changes the rate and/or term of the loan. For example, if you had a 30-year fixed rate mortgage at 7%, and you got a new mortgage for 15-years at 6%, you would be changing both the rate (interest) and term (number of years remaining on the loan).

With a rate/term refinance, you either put more money into the house as you refinance, keep the balance exactly the same, or take out a limited amount of money. You would usually roll fees into this loan, but even with those fees, most people find their monthly payment lowers and the lower interest charged plus the fees means they pay less money in the long run. Because the risk is low on a rate/term refinance, most lenders offer a lower interest rate on this type of loan.

With a cash-out refinance, you are pocketing some money in the transaction by more leveraging your house. You are borrowing more money and using the equity in your home as collateral. Since your loan will be larger, your payment may go up. Your interest rate may or may not go up, but the lender will assess more risk to your loan, which means the rate will be higher than if you did not take cash out. Finally, your term may change. If you were already five years into a 30-year loan, and change to a new 30-year loan, then you've added five more years to repaying the loan. And here, too, you will probably roll in closing costs. These factors can all make your monthly payment go up or down.

Also, consider that you may drop PMI by refinancing, or, if you take too much money out, put yourself in a position where you will now need the insurance.

Answer 2

I took out a second mortgage....the back appraises your house @ the current value, then looks @ what is left on your first mortgage. The difference between the two is what you can borrow, because when you sell, you will pay it back. Example....I bought my house 1 1/2 years ago, owe $86,000 on my mortgage. The bank appraised my home @ $200,000. I was able to borrow the difference (like a debit card, you don't have to borrow the whole difference). I pay 1% of the borrowed amount each month. I have 10 years to borrow and 15 years to pay it back. If I sell, I will pay it back with the profits from the sale. I did not have any closing costs, none. I paid no money to do this. I used Bank of America. Good Luck. Email me if you have any questions.

Answer 3

Refinancing should always be done to either lower your interest rate, consolidate some debt, or make improvements to your home. You should never use it to just take out equity and piss the money away. Bottom line, always have a plan, because if there is no advantage, it just doesn't make sense.

Answer 4

The only reason to re-fi is for the purpose of lowering your original rate; people who add to their mortgage are fools! Just a good tip- stay away from abn amro (lasalle affiliate)