A mortgage is a loan to borrow money with the borrower’s real estate serving as collateral. Refinancing refers to the replacement of an existing debt obligation with another debt obligation under different terms. Therefore, a mortgage refinancing is the replacement of loans based on mortgage. At first you have to pledge your real property as collateral to obtain a mortgage loan. Then you get the chance to apply for a remortgage, which we also name mortgage refinancing.
To be professionally accurate, to refinance a mortgage involves the process of paying off one mortgage with the proceeds from a new mortgage using the same property as security. You can require an appraisal of the house you offered as collateral. If its value becomes higher, you have the right to apply for a mortgage refinancing with the same house. In other word, the second mortgage takes the place of the previous one with the security unchanged. The main purpose of refinancing a mortgage is to acquire a lower interest rate from another lender. So the borrower can relieve from the heavy financial burden.
In a mortgage refinancing, you pay off the old loan with the new loan. And usually the term and interest rate become different. For those who want to repay the mortgage earlier, they may choose a mortgage refinancing with a shorter term. Whereas for people who have difficulties in completing the mortgage on time, they can have another mortgage to postpone the maturity date. In this case, the refinance rate is often more favorable. Thus the house owner can regain the capacity of completing the repayment.
There are both benefits and risks in a mortgage refinancing. You must be careful before making the decision of refinancing your mortgage. As the cost is always very large, you’d better ask advice from an experienced individual or a professional.