When it comes to managing your home loan, you might have heard about refinancing and getting a new loan. Both options involve borrowing money again, but they serve different purposes and have different benefits. Understanding the difference can help you make smart decisions about your finances.
Let’s break it down in simple terms.
What Is Refinancing?
Refinancing means replacing your current mortgage with a new one, usually with better terms. Think of it like trading in your old loan for a new loan that fits your needs better.
People refinance for different reasons. Some want to get a lower interest rate to reduce their monthly payments. Others may want to switch from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage to lock in a steady payment. You might also refinance to shorten the term of your loan from 30 years to 15 years, helping you pay off your home faster.
Moreover, refinancing can allow you to tap into your home’s equity — the portion of your home that you actually own. This means you might get extra cash from your home’s value to use for things like home improvements, paying off debt, or other expenses.
What Is Getting a New Loan?
Getting a new loan means applying for a completely separate mortgage, which is often used to buy a new home or to invest in another property. It doesn’t replace your current mortgage; instead, it’s an additional loan.
For example, if you want to buy a second home or an investment property, you’ll usually get a new loan rather than refinancing your current mortgage. A new loan has its own loan terms, interest rate, and monthly payments.
Refinancing or getting a new loan—know the difference to make the best move for your home and wallet – Source: Jakub Żerdzicki on Unsplash
Key Differences Between Refinancing and Getting a New Loan
Here are some simple points that explain how refinancing and getting a new loan differ:
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Purpose
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Refinancing: Used to change the terms of your existing mortgage—usually to save money or adjust your loan.
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New Loan: Used when you need to borrow money for a new purchase or investment, not related to your current mortgage.
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Number of Loans
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Refinancing: You replace your old loan with a new one, so you still have only one mortgage.
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New Loan: You add a second (or third) loan if you are keeping your current mortgage and borrowing more money.
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Costs
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Both refinancing and new loans involve closing costs, but refinancing often has lower fees because you’re just tweaking an existing loan, not starting fresh.
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New loans may require higher down payments and stricter credit approval since it’s a separate loan.
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Approval Process
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Refinancing approval might be easier if your financial situation hasn’t changed much since you got the first mortgage.
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Getting a new loan requires a full application, credit check, income verification, and appraisal.
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Monthly Payments
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Refinancing aims to lower your monthly payments or adjust your payment schedule.
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New loans add a new monthly payment on top of your existing mortgage payment.
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When Should You Consider Refinancing?
Refinancing makes sense if:
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Interest rates have dropped since you got your original loan.
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You want to switch loan types (like going from adjustable to fixed rate).
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You want to reduce your monthly payments to free up cash.
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You want to shorten the loan term to pay off your home faster.
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You want to withdraw cash from your home equity for other purposes.
When Should You Consider Getting a New Loan?
You would think about a new loan if:
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You are buying a new home and won’t be selling your current house right away.
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You want to invest in property or land.
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You need additional financing for large expenses not related to your current mortgage.
How the Bookspan Baker Team Can Help You
Understanding the difference between refinancing and getting a new loan is just the first step. The next step is talking to someone who can guide you through the process and help you find the best option for your unique situation.
That’s where the Bookspan Baker Team at Guild Mortgage comes in. They specialize in making the mortgage process easy and clear. Whether you want to refinance your current home loan or get a new loan for a new property, their experienced team will help you every step of the way.
They take the time to answer your questions, explain your options in simple language, and help you get the best rates and terms possible. With the Bookspan Baker Team, you’re not just another loan number—you’re a valued client with goals and dreams they want to help realize.
Ready to Take the Next Step?
If you’re curious about refinancing or considering a new loan, don’t wait! Reach out to the Bookspan Baker Team at Guild Mortgage today to learn more. They can give you a free consultation and help you understand what’s best for your situation.
Visit their website: bookspanbaker.com
Or get in touch directly using the contact info below.
Contact the Bookspan Baker Team
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Phone: 602-522-9494
Making a big financial decision doesn’t have to be confusing. With the right information and the right team, you can make choices that help you save money, reduce stress, and move closer to your homeownership dreams.
Remember, whether refinancing or getting a new loan, the Bookspan Baker Team at Guild Mortgage is here to help you every step of the way. Give them a call or visit their website today!
Source: bookspanbaker.com
Header Image Source: Jaye Haych on Unsplash
