The concept of mortgage refinance is one that many people understand on the surface; refinancing your home allows you to access the equity that has built up in the home you own by changing the mortgage amount.
Let's take that understanding one step further by helping understand how it all works.
Let's say you purchased your home for $350,000 and had a downpayment of 20% or $70,000. That would have made your mortgage amount $280,000. Over the course of the next four years, you make your regular payments and your mortgage balance is now only $255,000. While you recognize your mortgage is not up for renewal for another year, you would like to build a deck in the backyard and perhaps have your driveway paved and you need to access the equity in your home in order to make those things possible. This is where a refinance could come into play.
To begin, you would get an appraisal on your home to obtain the current value of your property. Once this information is obtained, the application would be submitted to the lender. Let's say that the home your purchased for $350,000 has increased in value to $425,000. When you deduct the outstanding mortgage balance, you have $195,000 in available equity.
Let's say you need to take $30,000 from that available equity. Your mortgage amount would increase from $255, 000 to $285, 000. That $30,000 would be transferred from the lender to you. Essentially, you are borrowing from the lender and they are adding that amount to your mortgage.
This is why so many people look to refinance their homes in order to do home renovations or make larger purchases. It's important to be aware of all of your options. Refinance is only one of them. To explore your options and decide whether a refinance is the right option for you, contact me today and let's talk about your goals and how we can make them happen.
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