FinanceCreditLoans
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  • Finance refers to the circulation of money by granting credit and making investments through the bank's established, according to the Merriam Webster Dictionary. Refinancing is renewing a previously financed loan.

    Considerations

    Refinancing a loan becomes an option when the value of the property exceeds the amount of payoff. When this occurs, it is called equity.

    Significance

    Establishing equity in real estate is more common than personal property. Real estate gains value (appreciates) faster than it loses value (depreciates). Personal property depreciates rapidly, making it difficult to gain equity and harder to refinance.

    Potential

    Taking advantage of equity on a piece of property and refinancing a loan can lower monthly payments by increasing the term (number of payments) or taking advantage of lower interest rates.

    Benefits

    Improvements to a home can be accomplished by obtaining a home equity loan. Consumers can use the equity in their home to refinance by increasing amount of their loan to allow for improvements to property. Doing this will further increase equity in the home.

    Warning

    Refinancing is not free money. There will be fees added to the new loan that could include origination fees, filing fees, appraisal fees, inspection fees, application fees, closing costs or private mortgage insurance. Always check with the lender and obtain a good-faith estimate of all fees associated with refinancing to ensure the costs are worth the outcome.

    Source:

    The Merriam Webster Dictionary

    The Federal Reserve: A Consumer's Guide to Mortgage Refinancings

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