What is Mortgage Refinance

How does Mortagage Refinancing Work?

A refinance alters the terms and conditions of your existing mortgage – it’s essentially a new mortgage.  Specifically, you are increasing the amount of your mortgage, whether to pay off consumer debt, finance a renovation, invest, or to get a lower rate.

Something to point out: When you want to access equity in your current home, the mortgage guidelines/rules are totally different from the mortgage rules in place for purchase transactions.

When refinancing (accessing your equity) the maximum new mortgage (or existing mortgage plus any Home Equity Lines of Credit) is limited to 80% of the appraised property value.

The Lender will request a full appraisal report completed by a licensed appraiser to determine current property value.

For example:

Your home is appraised at $1,150,000

80% of the appraised value would be a $920,000 new mortgage.

Then we have to subtract the existing mortgage + penalty, to determine any available equity left to be used:

$920,000 - ($827,000 approximate outstanding mortgage + $10,000 estimated penalty) = $83,000 available equity 

Example #2: 

Property appraised at $1,200,000

80% of the appraised would be a $960,000 new mortgage.

$960,000 - ($827,000 approximate outstanding mortgage + $10,000 estimated penalty) = $123,000 available equity.

As you can see, the appraised property value plays a huge role in the maximum amount you will be able to get from the refinance.

In addition, you can expect to pay for the full appraisal and legal costs (about $1,300 to $1,500). Those costs can be included in the mortgage.

Do you have any other mortgage related questions? Email me at [email protected]