How does refinancing work?

[Bradley Palmer]

Hello everyone,

Ok, so I hear about people refinancing their properties, to get money for more properties all the time. How exactly does this work? How do I make money by refinancing? For me I'm thinking about refinancing my current house so that I may free up VA loan benits for a new peace of real estate. Are there more benefits to refinancing than just freeing up the benefits of a certain type of loan? Any and all help is appreciated. Thank you very much for your time and I hope you have a wonderful day!

[Kevin Sobilo]

If you have a home worth $200k and you owe $100k on your current mortgage, then you have $100k in equity sitting in that house. The house might appreciate, but appreciate is slow and unpredictable. So, you might be earning 1% in appreciation on that $100k in equity.

However, if you do a cash-out refi with a 75% LTV, then you can take a new loan out for $150k. You will pay off your old $100k mortgage and have $50k left over to invest in something that will hopefully yield well more than the 1% appreciation you were getting before.

If you are refinancing your primary residence, you might be able to get an 80% LTV conventional loan at a fixed rate. That is a nice thing because rates are still low but trending higher. So, the opportunity to lock in a low rate is a good thing.