Instead of making several different payments each month to several different creditors, you can roll all of your debts into one loan, usually at a better rate. This is called debt consolidation and refinancing your home is one way to accomplish it.
Understanding the following debt consolidation terms can help your loan application go more smoothly.
Appraisal: A written analysis of the estimated value of a property, as prepared by a qualified appraiser. The lender uses this in determining your qualification for a loan.
Appreciation: The increase in value of a home as a result of market conditions. The appreciated value of your home is the amount it is now worth.
Break-even point: The point at which a homeowner will begin realizing savings after refinancing a mortgage. This is when it makes since to refinance.
Cash-out refinancing: Refinancing a mortgage for more than you currently owe and using the cash for another purpose. It is often used for paying off debt or financing home renovations.
Equity: The difference between the fair market value of your home and the current amount left on your mortgage. It is also referred to as the owner’s interest.
Home equity loan: A second mortgage secured against the equity in your home. It allows you to tap into your built-up equity and obtain a lower interest rate that you would normally get on an unsecured loan.
Home equity line of credit: A revolving line of credit that is secured against the equity in your home. Similar to a credit card, it enables you to withdraw money, as you need it. Because it is secured against your home, it allows you to get a lower interest rate than you would normally get on an unsecured credit line.
Mortgage refinancing: When you pay off one mortgage with the proceeds from another, you are refinancing. You may do this to get a better interest rate, change your mortgage product, change the terms of your mortgage, get money to renovate your home, or to pay off debt.
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