It is essential to know everything you can about real estate. Let's say for example that you are in the process of looking at Long Grove homes for sale as this can help you succeed in having your dream home. One of the many things that you have to know is a refinance loan.

What is a Refinance Loan?

A refinance loan is a new loan that is taken out by a borrower to shell out his/her last loan. It is normally in the first position; however, borrowers may refinance a home equity loan, as well.

The following are the benefits of refinancing home loans:

• Borrowers may get a lower monthly payment if they plan to stay in the house long enough to manage the refinance expenses. This will result to a bigger cash flow each month.

• If the interest rate is significantly lower than the last one, you may shorten the amortization period by trading in for a bit higher payment; however, you should carefully think this over if this would be better for you.

• A lot of borrowers get cash so that they can make an investment at a higher return rate than the new rate of interest.

Knowing the benefits is just as important as understanding the drawbacks. Here are the disadvantages of refinance loans when planning to buy Long Grove real estate properties:

• If you are paying for fees to get the loan, it clearly costs you money, which you might not recover by way of a lower rate of interest for a certain time period. To clarify, you should sum up all the fees and then solve the difference between your original mortgage payment and the new one; divide the difference into the fees. The answer to this would be the number of months in which you have to pay on the refinanced loan to break it even. Here's an example, if the loan fees are $5,000 and the savings per month is $100, it would take you 50 months to break the refinance even.

• If you refinance a mortgage loan, you will have a longer amortization period. Borrowers may choose to shorten this, but not everyone can be qualified for the higher payment or some just do not like it if they will have to pay more each month so that you can pay the loan faster. In general, borrowers extend the loan's term; for example, if a borrower refinances his loan with 25 years remaining for a new loan with a period of 30 years, he turned the 30-year loan into a 35-year home loan.

• By means of moving your loan expenses into the loan itself, then you are pulling out a bigger mortgage that gobbles up your equity position. Furthermore, if you take out what is referred to as a cash-out refinance, your loan balance will be increased.