Number One Home Loans

If you are only refinancing, it would be the current balance of the mortgage. However, many people will refinance for more than is owed so they can use the money for other things like paying off bills or to perform work on the house. In that case, the loan would be for more than the balance but less than the value of the home.
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Refinancing can work a number of ways. To understand, don’t focus on the old loan. Think about what the new lender is willing to loan you. Of course, in order to establish a first lien position, all other liens must either be removed or be approved by the new lender. Practically speaking, this means paying off the existing mortgage. Typically, prospective lenders will handle the process so that there is a smooth transition from the old lender to the new.

Now, how much will the new mortgage be? Well, that’s up to you. In your example, you could request a loan for $79,500. There are probably closing costs, so you would have to bring some money to closing. Or you could request a larger loan, say $84,500 (assuming costs of $5,000). In this case, you would have to bring no money to closing.

Or given the appraisal of $140,000, you could borrow up to $112,000. You would pay off the old mortgage, pay closing costs and pocket the rest. On the other end of the spectrum, you could borrow less if you had other sources. For instance, you could borrow only $50,000 and bring $29,500 plus costs to the closing.

The real limit is placed by the lender and by your own discretion. Now that I’ve probably been overly complex, most people just refinance their existing balance. There is a variety of practice regarding closing costs. I refinanced a few months ago and brought some extra cash to closing so that I would continue with the same loan balance. But some people would roll the closing costs into the new loan.
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There is absolutely no way that you can refi for $79,500. Just like others have stated, you will have to pay closing costs in one way or another. I urge you to stay as far away from a broker as possible. They will charge you up to 20% of the loan amount (standard is 8%) and keep in mind that a bank will offer no closing costs but will charge you a higher interest rate. Now is a good time for rates, but many lenders are unstable due to the crisis with the economy so make sure you refinance with someone who won’t sell your loan.
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