How does a refinance work?

There is no catch to a refinance. There are closing costs which is how a broker/lender gets paid. 2 types of refinances: Rate and Term or Cash-out.A R/T only refinance is where you refinance in order to change the rate and/or term of your loan only. For instance, you may have paid for 6 years now at 6.5% on a 30 year fixed mortgage you opened at 120,000 say. The balance is now 110,000 (more like 114,000 actually :-). Say closing costs are 4,000 rates are lower and now you qualify for 4.875 or 4.75%. You could refinance into a 20 year fixed and the payment shouldn't be any higher than what you were paying, no calulator here but you get my point....you just squashed 6 years of payments and made them go away. A cashout refinance is when you actually take out more equity for some purpose (debt consolidation usually, home improvement, or other reason).Debt consolidation is a beautiful thing for many cash strapped people. For example, you have a house payment of 1200, car payment of 380, and total credit card payments of 380 per month. Say the balances are 100,000 12,000 and 8,000 respectively. Your original loan was for 110000 but the house is now worth 200,000 (maybe you made a down payment but again just showing you the reasoning). Now you could payoff all those balances into one loan, maybe bring the loan back out to 30 years, maybe not, it depends. But your total payment should be much less than the combined payments you were making. The difference of which you pocket to make life easier or being smart you still make the same payment but apply it all to the new loan and kill it off much faster. The idea here being that the new loan rate is much lower than the auto loan and credit cards, especially if like most people those are 13% or more.Well I hope I've helped a bit.Steve@eqfonline.com

No matter what kind of refinance you do, there are costs involved for completing that. You can either choose to pay for those out of pocket, add them to your loan balance if you have enough equity, or take a no closing cost loan. If you pay out of pocket or roll them into your loan, you need to be able to justify the extra monthly savings for the costs involved and the amount of time you plan to keep that mortgage/house. Look for your break-even point. If you do a no-closing cost loan, if you're looking for a "catch," it would simply be that you won't get the lowest market rate available as those costs will be paid for by the lender on your behalf in exchange for paying a slightly higher rate over time. The technicalities of how that all works are a little more difficult to explain, but essentially it has to do with Wall Street, somewhat like the price paid/received from a stock purchase/sell. What's important to you is that you have choices on how your refinance is structured and you review the one that works best for your needs and circumstances. This is where finding a good, professional mortgage advisor is important; click on the "find a lender" tab above and find someone in your area to help you out.