What Does Refinance Mean?

To refinance is to reassess your debt obligations and to replace an existing credit agreement with a new one under different terms. You would do this to negotiate a better interest rate, a reduced monthly installment or a reduced repayment term, or to consolidate debts or free up cash. It all boils down to saving you money or at least getting your debt obligations to the point where you are comfortably able to manage them. So what does refinance mean? For a better explanation about this topic please consult with a licensed Long Island Mortgage Company.

Refinancing at a Better Interest Rate

A lot of refinancing happens when interest rates change. Under a new credit agreement a lower interest rate makes it possible to reduce your monthly payments, or reduce the repayment term. In the long run this saves you money.

Refinancing to Consolidate Debts

A consolidation loan could be an effective way to refinance if you have a number of credit or loan facilities. It requires that you obtain a new loan equivalent to the value of your total debt. This money is used to pay all your debts, leaving you with this single loan to repay. This is only effective if the interest rate of the consolidation loan is lower than the average interest rate across all your original credit products. A lower interest rate may lead to reduced monthly payments or a reduced repayment term.

Refinancing to Free up Cash

Cash-out refinancing is sometimes confused with a second mortgage. With both you basically borrow money against the equity in your home. Where a second mortgage is an additional loan with its own monthly installments and conditions. Cash-out refinancing combines the outstanding amount on your current mortgage with the amount of cash you want to borrow. (Which shouldn’t be more than 80% of the equity in your home). This amount is then used to pay your mortgage and leave you with the extra money you requested. You will still only have a single mortgage to repay.