A refinance means you replace your current mortgage with a new mortgage. There are two types: 1. **Traditional refinance**. Replaces your loan with a different with a lower interest rate or a different term. This can help you pay off their mortgage faster, eliminate mortgage insurance, or change your loan type. This is why the [[A majority of homeowners in 2024 have interest rates below 4 percent]] is so large: during lockdown, mortgage rates were 3-4%, so many homeowners refinanced. *AKA "rate-and-term refinance" or "no cash-out refinance".* 2. **Cash-out refinance**. A way to get cash by replacing your current loan with a larger one. A cash-out refinance makes sense when you've improved the value of your home. The amount of cash you can get out is proportional to your leverage. For example: 1. Let's say you buy a $2M home at 25% down, so you have home equity of $500K. Home equity is the market value of your home minus your loan balance. Note that this is not a measure of how much cash you've invested. 3. You invest $500K in renovations, improving the market value of the home to $3M. 4. Now your home equity is $3M (market value) minus $1.5M (loan balance) = $1.5M (previously $500K), where it was previously $500K. You've turned a $1M cash investment into $1.5M of home equity! 5. **A cash-out refi allows you convert some of this new home equity into cash**. Banks based loan amounts on the market value of your home, so a 75% LTV loan is worth $2.25M. This pays off your original loan balance of $1.5M, leaving you with $750K of cash. You would commonly use this to return capital to your investors. *Question*: we're building a differentiated product, and may try to charge above-market rents. Is it true that appraisers won't take current rents into account, and only consider market rents? - Paul Stanton's answer: - Refi appraisers look at home price appreciation... but yeah they only care about market rents. - If you plan to exit on a cap rate basis, like by selling to a larger portfolio of multifamily, then I'd get credit for NOI uplift.