Definition: Refinance on a mortgage refers to a process in which a borrower refinances their existing mortgage loan, typically with a new home or other property, in order to lower the monthly payment.
The concept can be explained as follows:
- A mortgage is a financial instrument that provides debt service repayment for an initial principal amount and any additional amounts borrowed. It involves the purchase of real estate, which often includes both residential and commercial properties.
- Refinancing means restructure or restructuring of the loan with a new loan amount, interest rate, or other features, typically through a lender's network of branches or a third-party service provider.
The refinancing process may involve several steps:
1.
Closing
: A mortgage lender will close the transaction. The funds are usually transferred to the borrower and the seller of the property.
2.
Loan modification
: In some cases, lenders modify the loan terms to reduce monthly payments or improve credit score for the new borrower.
3.
Redemption of the principal amount
: Once a borrower decides that their current mortgage is no longer necessary due to employment termination, they may decide to redeem the outstanding balance.
4.
Closing with a new mortgage
: The new mortgage loan typically has higher interest rates and/or fees than the previous one, but it also allows the borrower to make payments on both mortgages at once.
The definition of 'refinance on mortgage' can vary depending on the specific context and regulations in place. In general, refinancing is a common way for borrowers to reduce their monthly debt payment without changing the type or structure of the loan, such as a home loan or a car loan.
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