Refinance: Remodeling your Loan

2007-03-08 10:33:40

( Financial )



REFINANCE REDEFINED

Refinance is an umbrella term that refers to any new arrangement that changes your existing mortgage in the form that it currently has. Loan consolidation is a form of refinance program that specifically addresses the needs of individuals with multiple loans.

To refinance usually involves your home mortgage. It means to take a second loan on top of your existing mortgage in order to modify some aspects of the loan into a form which is more favorable on your part.

A more specific type of refinance is refinance with cash out. Under this program, you take a new mortgage to supersede your old one. The amount of the new loan is greater than your existing mortgage so you can close the old mortgage and have some extra cash leftover that you can use for other ends.

REFINANCE VS. EQUITY LOAN

How is refinance with cash out different from an equity loan? On the surface a mortgage refinance seems similar to an equity loan, but they are not. An equity loan is a second mortgage that is given by your lender based on the equity value of your property. The money you take out is not used to supplant the old mortgage but is used for another purpose like to renovate the house, buy a new property or open a business.

Refinance with cash out is simply applying for a loan whose amount is bigger than your current mortgage. You will then use this refinance loan to close out your original mortgage and keep the rest of the money for personal use.

Simply put, when you refinance with cash out you substitute a new loan for an old one. With an equity loan, you take a second mortgage on top of your existing one. Each program has its pros and cons and one program will fit your needs while the other will not.


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