Anonymous asked in Business & FinanceRenting & Real Estate · 1 decade ago

what does it mean to refinance a house?

can you please keep it not too confusing..well i have an aunt who says all shes paying is interest..that she hasnt payd a single dollar for the house(all intrest)..until she what does that mean

11 Answers

  • 1 decade ago
    Best Answer

    She has a short term "interest only" loan on her home. Here is the official definition.

    A mortgage where the borrower only repays the interest arising on the principal amount borrowed. The principal amount borrowed is repaid at the end of the term, usually via an investment product such as a pension, life insurance product or stock market investment.

  • 1 decade ago

    to refinance means to change the terms of a loan. basically it means that your aunt will be taking out a new loan. whoever she owes for her house right now will be paid off in full, she will now owe another mortgage company whatever she owed the first mortgage company plus some extra fees. so, let's say a person owes $100,000 on a house at a 7.5% interest rate, and their house payment is $1,200 a month. this person can refinance to get a lower interest rate, let's say a 5.9% rate, and their house payment will go down to 1,000 a month. this person now owes $110,000 on the house, but now is saving $200 a month. get it? that's the idea behind refinancing. thatt's just one of the simple way's to save money by refinancing, there are several different terms and conditions that can apply, but we're trying to keep it simple.

    now, your aunt is on what they call an "interest only" loan. what this means is that she has a lower house payment than what she would normally have, but 100% of her payment goes towards interest. let's talk basic loan terms: a person's house note consists of two things...principal and interest. principal is what you actually owe on the house and interest is the interest on the house. under normal conditions, in the first couple of years of paying the mortgage, a small portion goes to the principal and the rest goes to interest. well, in your aunt's case ALL of her payment goes to interest. the way to stay ahead of the game in an interest only loan is to send in a little bit extra money on your payment. any extra that is sent in goes directly towards her principal. so she could actually be paying more towards her principal if she were to pay a little extra each month with an interest only loan, than she would if it were a regular loan.

    so basically when she refinances she will just go from an interest only loan to a loan that pays principal and interest. i hope that i wasn't too complicated for you.

    you have to look at it in black and white and realize how much money these mortgage companies are making...ok, if you have a mortgage that's $100.000 and hypothetically speaking, you where paying the loan back with 0% interest. all that you will pay back is $100,000, right? ok, that would break down to paying $3,333.33 a year and $277 a month. well, let's see what it's like paying a loan back with interest. so you tack on 10% interest. your payment now is $1000 a month (this is just a nice even number, to make it easier) $1000 a month is actually a pretty reasonable mortgage payment, a little on the cheap side, well, what's $1,000 a month over 30 years? you end up paying $360,000 for a $100,000 house over 30 years!!!!!!! the best way to save money in the long run is to have a shorter term, there is usually 25,20,15, and sometimes 10 year terms available. they may cost more per month, but in the end, they could save you $100's of thousands of dollars!!

    Source(s): former mortgage loan officer.
  • 1 decade ago

    The bottom line is when she says she is paying interest only...that every month when she makes her payment the money is only paying the interest on her loan and not her actual loan. Basically she is renting her house because she is never paying off the loan itself. If she would like to refinance or has other questions email me or give me a call.


    House costs 100k

    Interest every month (only an example) 1k

    Every month she pays that 1k she still owes the original 100k on the house even if she paid that 1k a month for 30 years.


    GreenTree Lending


  • 1 decade ago

    You usually refinance into a fixed mortgage not an ARM loan which your aunt seems to be paying on. An ARM loan allows you to only pay the interest on the home loan for a set period of time before you have to pay the principal on the loan. When you start paying into principal on an ARM loan the interest rate adjust and many charges are added due to not paying on the principal for a period of time. This is the reason so many people are foreclosing because their ARM loans are matured and now they have to pay into the principal. When you refinance you usually are put into a fixed loan and you pay on the intrest and pricipal.

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  • 1 decade ago

    Depends on what her interest rate was originally. If she can refinance she can possibly get a better rate. When I bought my house it was at a higher interest rate but when home loan interest rates started dropping I refinanced to get a better (less interest more to principal) rate. Normally the first few years go to interest anyway but if a lower rate can be gotten why not

  • 4 years ago

    This Site Might Help You.


    what does it mean to refinance a house?

    can you please keep it not too confusing..well i have an aunt who says all shes paying is interest..that she hasnt payd a single dollar for the house(all intrest)..until she what does that mean

    Source(s): refinance house:
  • 1 decade ago

    Most people refinance to get a lower interest rate .

    If she is paying 10 % on a $100,000 loan she pays $10,000 interest ,

    If she goes and gets a new loan for the same $100,000 but this time it is for 5% so she only pays $5,000 interest instead of the $10,000

  • 1 decade ago

    on any mortgage, the 1st 10-15 yrs of monthly payments goes to the interest or finance charge. You actually don't start paying the principal amount , the actual price of the house, for at least the 2nd 10 yrs. To refi, is to take the existing loan, including the existing balance on the principal, and work w/ the today % rate and spread it over 10, 20 , or 30, yrs to pay it off

  • 1 decade ago

    Dude, grab a dictionary, or use the Yahoo keyword search. There is so much information out there, everyone has a different reason for refinancing a houses. The number rule in the housing market is to watch out for the creative home loans, anything over 30years is not a good deal, you end up paying the bank in the end.

  • marta
    Lv 4
    3 years ago

    That's a great question

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