What Is a Refinance?

This is probably the most basic question that really needs to answered. I help people refinance their mortgages on a daily basis and I guess I take it for granted that everyone already knows the answer to this question. I view refinance as as financial tool and understanding what it is will help you realise the potential you have to accomplish your financial goals.

Just the word Refinance can mean different things depending on your goals. You may be looking to only lower your interest rate, maybe to lower your monthly expenses or to consolidate debt. It could be that you only want to have one payment left to deal with or you want to take money out of the equity in your home for a particular reason (home improvements, new car, college tuition or investment purposes, etc.). Whatever your reasons, it is important to know that you can accomplish these goals by refinancing your mortgage.

First Understand What Your Mortgage Is

When you purchased your home you took out a mortgage against it. In other words, you had to borrow money from a lender to pay for the home. The reality is that the bank has a lien against your home. A lien is a legal term for the right to hold your property as security until the debt which it secures is paid in full. If you were to look at the title to your home, you would see a lien in the name of your lender. When the mortgage note (loan) is paid for in full, then you will own the home free and clear and the mortgage lien will then be removed from the title or deed. Does this make sense so far?

Having said all that let me explain what a Refinance is! A refinance is simply taking out another mortgage to pay off the existing mortgage and replacing the old one with new terms. There are many options available to you when you refinance, again depending on your goals. Keep in mind that not all your goals may be accomplished. There are certain factors that are required in order to be able to qualify for a refinance.

I hope this post has helped increase your Refinance Knowledge by giving you a basic understanding of what a refinance is.

This was a question asked on Yahoo answers, I thought it would benefit this website so I also posted it here.

How do I fix my credit? A Lender told me about some things that were in collections. That can't be right, I paid them off 2 yrs ago. How do I get rid of those old paid collections?

by sgrady68...
Member since:
November 12, 2006
Total points:
143 (Level 1)
Best Answer - Chosen by Asker
Goto www.annualcreditreport.com. The first thing you need to do is find out where you stand. You said you've paid some things off...well if they are still showing a balance on your credit report (aka: cr) then you can dispute all those items directly with the credit bureaus. You can do that from the above website. You need to look at all three bureaus and dispute all derogatory items with all three. The bureaus are obligated by law to investigate and the creditors have 30 days to repsond whether or not you owe them. Print a copy of each report. Look for things you still owe, your cr will contain contact information for every creditor on your report. next step is to contact creditors you still owe and negotiate a settlement. I would recommend starting with 30% of the balance shown on the cr. If an item has been in collections at least 6 mos. they are more willing to negatiate a settlement. DO NOT send them any money without a written payment agreement or settlement agreement. Do your correspondance with cerified mail. After all that go to www.myfico.com and read about ways to build credit...you first need to stop the bleeding. Hope this helps!


Asker's Comment:
Thanks for the good advice.

Repairing Credit!

Credit scores are like a toilet, the water flushes down quick but takes a while to fill back up. One 30 day late on your mortgage pmt can lower your score easily 100 points. Your mortgage is the biggest part of your score, so no matter what make that payment first if money gets tight. You can dispute items on your report that are not reporting correctly by contacting the credit bureaus. There is only one website that you can truly get a FREE copy of your credit report. If you don't want to sign up with a credit card then you need to go to http://www.annualcreditreport.com/ now. This is the only website the federal government has endorsed for your free free free copy. Check back after you have your credit report, of course print it out.

Discount Points?

Discount points are used to buy down the interest rate. It is exactly as it sounds, you pay now, up front and the lender will give you a lower rate. Discount points are considered by the IRS as mortgage interest and the fee therefore is tax deductible (consult your CPA). 1 point is calculated as 1% of the loan amount. For example on a $100,000 loan x 1% = $1,000 added to your closing costs. Now the reduction in rate could actually save you thousands of dollars over the life of the loan and the IRS will return the initial grand you paid up front. Not a bad investment. But the numbers need to work out and you need to do your own figuring. If you have a scenario you want to run by me, post it here and I get back to you!