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.