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Refinancing

 Listen After you buy a house, you can refinance your home loan.  Refinancing your loan is getting a new loan to replace the existing loan.  You would have different terms, a different interest rate, and your term would start over.  It is the same as getting a new loan.  Your new loan would pay off the old loan.

 Listen There are many reason why someone would refinance there home loan.  The top several reasons are to: lower there interest rate if the rates have dropped, to replace a 3, 5, or 7 year arm, or to reappraise their house to not have to pay PMI any longer.

 Listen It's very simple to refinance your loan.  It is actually easier than getting a brand new home loan.  There are less paper work and less fees.  The first couple of reasons people refinance that I mentioned above are very self explanatory.  The last reason I gave is a little more complicated that many people do not know about.  

 Listen Let's say you bought a $300,000 house and you only had 10% down payment.  That means you need to obtain PMI for the additional 10%.  You paid $30,000 as a down payment, and you need $30,000 more to stop paying for PMI.  Your loan amount at this time is $270,000.  If you had a regular 30 year fixed loan at a 6% rate, it would take you 7 years and 5 months to get your principle below $240,000.  So if you were paying PMI of $60 a month, you would be paying more than $5000 in PMI.  So instead of paying for PMI, you can refinance your home after 1, 2, or 3 years without having any additional money and not pay the extra $60 a month.

 Listen When you refinance your home, they will get another appraisal.  This means that they will determine the price of your home again.  If after 2 years, your house is valued at $330,000, you could refinance and not pay PMI.  If your loan balance is less than 80% of the property value, then you don't need to pay PMI.  Remember the 20% rule I told you about earlier?  Let's take this step by step.  You put down 10% on your first loan.  That is $30,000.  After two years of making payments your loan is now at $263,164.  That means you paid almost $7,000 towards the principle, which is your loan amount.  So you now owe $263,164.  If you refinance your house, the appraiser will determine your current house value.  In the case it is worth $330,000, they will tell the bank that the house is worth $330,000.  So when you refinance, they will subtract your loan amount from the new appraised value.  In our example, they will subtract $263,164 from $330,000, which is $66,836.  In a way, your down payment on this new loan is now $66,836.  On a $330,000 property, you would need 20% down to not pay PMI which is $66,000.  Since your equity is now $66,836, you are now over the 20% mark.  You have successfully bypassed paying PMI without having a single dollar.

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