Definition: The term "how mortgage refinance works" is a concept in real estate finance that refers to the process or method of refinancing a mortgage loan. Refinancing, also known as home equity conversion, involves transferring your current mortgage debt into a new mortgage with lower interest rates and/or less monthly payments. To understand how mortgage refinance works, it's important to know that when you take out a mortgage loan (often called "a loan for home ownership"), you essentially commit to borrowing funds from the lender. The interest rate on your loan is determined by the prime rate, which refers to the highest amount of money available on the market at that time. If you're able to make regular payments to cover this debt, you'll pay less than your current mortgage balance. After paying off your existing mortgage and making the principal payment (a term used in real estate financing terms), the lender will typically offer a new loan with lower interest rates or higher monthly payments. This is known as a home equity conversion, which converts the principal balance from the original mortgage into an equivalent amount of your property's equity. To recap: - Refinancing involves transferring your existing mortgage debt into a new one with lower interest rates and/or less monthly payments. - This typically occurs through refinancing or other types of loan modifications. - The purpose is to reduce your monthly payment without losing control over your finances.
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