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Refinancing Your Loan

Question: What does it mean to refinance a loan?

Answer: Refinancing your home can be defined as the process of applying for a new loan and using the money you receive to pay off your older mortgage.

Question: What type of property can be refinanced?

Answer: Almost any type of property that is encumbered with a loan can be refinanced. This includes homes, residential income property, vacant land, farms, farm equipment, cars, trucks, businesses, and certain items of personal property.

Question: What type of property is refinanced most often?

Answer: Although you can refinance almost any type of loan, most people think of homes or residential income property when they they talk of refinancing.

Question: Why do people refinance their property?

Answer: There are many reasons why people chose to refinance their property. They may want to lower their payment by getting a better interest rate than they currently have, to pay off bills and/or credit card debt, make repairs or additions to their property, restructure business debt, invest the equity in the stock market, or they may just want to pull some cash out to go on vacation.

Question: What are the steps involved in refinancing?

Answer: The steps to refinance a loan resembles the same steps used to get the original loan. First, you must talk to a lender, submit a loan application, have an appraisal done on the property, and do credit checks and employment verifications, if necessary.

Question: Do you have to go through escrow?

Answer: In most cases, you will have to go through an escrow process and if the refinance involves real estate, a title search will have to be done to establish a clear chain of title.

Question: How do you make money by refinancing?

Answer: To get cash from a property that you refinance, at least one of three things must occur.

  • The property must have already increased in value over what the original loan balance was.
  • The principal balance on the original loan must have been paid down.
  • The loan may be for the exact amount of the original loan and no additional monies change hands. In certain cases, a borrower may even have to pay the cost incurred, such as escrow, loan, and title fees out of his pocket.

Question: What is equity?

Answer: Equity is the difference between what is owed on a property such as loans, liens, and other liabilities, and the property's current value, which is usually determined by an independent appraiser.

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