There are two main reasons to refinance your home loan: (1) to lower your monthly mortgage payment by reducing your interest rate, or (2) to cash out your equity and use the money for another purpose. Most homeowners have both in mind when they refinance their mortgages.
Even if you do not have any equity, you still may be able to refinance your mortgage. This is particularly likely if your original loan was at an exorbitant interest rate due to poor credit. Without equity, a mortgage refinance loan will be of the amount equal to or less than your current mortgage balance. If it is for less, it is the responsibility of the borrower to make up the difference.
Nonetheless, such a plan still can save you money if your new interest rate is significantly lower than your rate before refinance. You pay off your current mortgage, and then can put the rest of the money to some other use.
Equity mortgage refinance loans are not available for homeowners who wish to accelerate their payments. Typically, the higher the interest rate, the longer the duration of your loan. If you are willing to restructure a 30-year loan into a 20-year loan, you may be able to refinance without having equity. Your monthly payments will be higher, but you will save a tremendous amount of money in interest over the lifetime of your loan.
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