Can someone break down how refinance works on a home

[Omar Alvayero]

I've heard that by refinancing on a home, one could end up keeping the equity of the home. Maybe I'm wording of wrong.

On other words if I bought the home for let's say $100,000 and now the home is worth $140,000.

If I refinance at $140,000 can I pay back the full $100,000 and end up keeping the remaining $40,000?

[Darren Budahn]

Omar Alvayero

When you refinance your home, you do payoff the original mortgage and then get a new loan on the house. Keep in mind you will have closing costs when you refinance.

Also, most banks are only going to lend at 75% loan to value. Therefore, in your example, you could only refinance 75% of $140,000. Therefore, your new mortgage would be for $105,000 and you could pocket the difference between the new loan amount minus whatever your old mortgage balance was. The original purchase price is irrelevant.