REFI not so easy any more. Good.

Refinancing your house became a way of life before the subprime mortgage market blew up. In the past, refi’s were done mostly to get a lower interest rate on a mortgage that had been written when interest rates were high. But more recently they became a popular as a way to get spending money out of your house.

“Refi” means simply that you get new financing to pay off old mortgage(s). Let’s say you owe $150,000 on your first mortgage and $10,000 on a line of credit and your house value is now $200,000. You might refinance to get a lower rate on your mortgage or to get some cash (you would write a new mortgage for a higher principle amount, say $180,000, enough to cover both mortgages, closing costs and leave some cash for you).

Recently, some people planned their refi before they signed their first mortgage. It usually worked like this: People got a subprime mortgage with a special up front rate that might last for only a couple of years. Once the initial period was over, the rate would go way up and they would no longer be able to pay the monthly bill. Their plan was to assume that their house would be worth more by the time the rate was due to go up, and because they now had more equity in the house and a better credit record, they could refi the house at a lower interest rate and keep the payment down.

When house values stopped going up, this plan collapsed and the house often ended up in foreclosure.

Today all of this is no longer possible in most situations. Lenders have locked the barn door now that the horse has gotten out. Refi has gone back back to its original uses. If you see mortgage rates go way down, you can refi to lower your interest rate. if your credit was bad when you bought the house, but is better now, a refi might get you a lower mortgage rate even i mortgae rates have not gone down. And if you have built up a lot of equity in your house over the years, you might use a refi to get some money out.

Read more about interest rates and what to look for in “Getting the best mortgage interest rate you can!”

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