Refinancing Loans

Your equity is the difference between what you owe on a piece of real estate and what you can sell it for. Your equity is usually a function both of the time you've spent paying down the mortgage and the appreciation of your property.

When you refinance real estate you generally are pulling out some of the equity and re-negotiating the mortgage, although there can be good reasons to refinance even if you don't take out cash.

There are a variety of reasons to refinance a home or other real estate investment. For instance:

• You may want cash to pay off high interest rate credit cards, finance a college education, purchase additional real estate, remodel, or for any number of other reasons. Refinancing your real estate can provide the cash you want by letting you use some of the equity that has built up in your home or other real estate investment.
• When interest rates of low, you may be able to refinance your home or other real estate investment at a substantially lower rate than your existing mortgage, both reducing your monthly payments and lowering your total costs.
• Sometimes you can accomplish multiple goals by refinancing – that is, you may be able to both get a significantly lower interest rate and pull out some cash.

There are costs involved in refinancing your home or other real estate investment. Most lenders charge some sort of an application fee. Since your new mortgage will be paying off your old mortgage, you need to find out if there's a pre-payment penalty involved. When you're considering refinancing, you need to consider all the costs involved so you know how much money you're actually saving.

When refinancing gets you a lower interest rate, the interest savings can be significant. For example, if you barrow $100,000 borrowed at 7% instead of 8%, for 30 years you'll save about $25,000 over the 30 year term of the loan. If you're able to pull out money to pay off other high interest loans, like credit cards, your total savings are even more impressive.

There are all sorts of refinancing loans available. Refinancing sources include both conventional lenders like banks, and less conventional lenders who lend what's known as private money.

You can find fixed rate financing the interest rate stays the same over the life of the loan), adjustable rate financing (the interest rate goes up or down depending on the prime rate or other measures) and financing for people with poor credit ratings (the better your credit rating, the lower the interest rate you'll be able to negotiate).

The actual amount you'll be able to refinance depends on the equity you have in your real estate. The lender will appraise your property so the equity can be exactly determined. Your interest rate will depend on the type of loan, the term of that loan, and your credit rating.