clarification on refinacing.

2 Replies

So my intial understadning is when a person refinaces a loan they essitinally are swapping out there old loan and replacing it with a new one with less interest. in this situation i underatand how people save money by lowering there interest rate thus lowering there payments, but i have been reading and hearing from people stating they got a large sum of money when they refinaced. i just read a artical where somome got 18k from a refinace. i just dont understand where the 18k came from if all he did was get a lower interest rate and in turn lower payments.

@Nicholas Wedra First, refinancing or a refi means replacing financing.  A cash buyer may finance a purchase with their own money and it is still a refi when they get a mortgage after the fact.

As for getting money back, this can happen when you have equity.  For instance, a cash buyer has 100% equity.  When they refi, they pocket the entire loan (minus closing costs), replenishing their cash.  Or maybe someone had bank financing when they bought, but the property they bought at $100K is now worth $150K because the area is appreciating, or they have forced appreciation by rehabbing.  Now they have $50K of equity on that $150K house.  If they refi for, say, $120K, $100K goes to paying off the original financing, maybe $2k to closing costs, and they pocket $18K (and still have $30K of equity).

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