Refinance
Categories: Muni Bonds, Banking
When you take out a mortgage, the idea is that you keep paying until you've paid off the loan. But there's another option.
No, you can't ignore the loan and never pay it back. (Sorry.)
But you can refinance it, which means either taking out another loan to replace the loan you have or changing the terms of your loan.
Example
James bought a house with an amazing mural of Vanilla Ice. It's great, even though James can't figure out why he has no social life.
Anyway, he takes out a $100,000 mortgage at 6% on the house. After five years, James still has $95,000 to pay off. But in that time, he's gotten a big promotion at work and makes more money; plus, his credit score has really improved because now he can actually afford to pay his bills on time.
James thinks he can pay off his house faster and save money with a better interest rate. He heads back to a bank and the bank gives him a shiny new home loan with an interest rate of 4% and a term of three years, meaning that James will have Vanilla Ice all to himself (sort of) in just three short years.
His old mortgage is scrapped and he's successfully refinanced.