What is home loan refinance?
First, let’s review what home loan refinance is. Refinancing a home loan involves replacing your existing home loan with a new loan that has better terms or lower interest rates. Homeowners may refinance for a variety of reasons, including reducing monthly payments, shortening the loan term, or tapping into their home equity.
What happens to your existing home loan when you refinance?
When you refinance your home loan, your existing loan is paid off and replaced with a new loan. This means that you no longer owe money on the old loan and are now obligated to repay the new loan.
The process of refinancing involves the following steps:
- Application: You’ll need to complete an application for the new loan, including submitting financial and personal information to the lender.
- Approval: The lender will review your application, and if approved, will offer you a new loan with new terms and interest rates.
- Closing: Once you agree to the new loan terms, you’ll need to sign a loan agreement and other documents, and the loan will be funded.
- Payment: After the new loan is funded, you’ll begin making payments on the new loan.
What happens to the remaining balance on the old loan?
When you refinance your home loan, the remaining balance on your old loan is paid off in full. This means that you’ll no longer owe any money on the old loan and are now obligated to repay the new loan.
What happens to the collateral for the old loan?
The collateral for the old loan, which is typically your home, is used to secure the new loan. This means that if you default on the new loan, the lender can foreclose on your home and take possession of it.