home equity

Do I lose home equity after refinancing?

Don TaylorDear Dr. Don,
When you refinance the mortgage on your home, what happens to the equity? Can it be saved while refinancing, or is it typically lost as part of the transaction?

Thanks,
-- Ken Capture

Dear Ken,
The equity that you built up in your home over the years, whether through principal repayment or price appreciation, remains yours even if you refinance the home.

From the lender's perspective, it all comes down to how the home appraises in the refinancing. If your home appraises for $250,000 and you owe $150,000 on the current mortgage, then refinancing the $150,000 doesn't change the fact that you own a $250,000 home.

There can be some slippage in home equity if you decide to finance the closing costs as well. If the closing costs on your refinancing are $5,000 and you don't want to pay those costs at closing, the lender can loan you $155,000 and you've reduced your equity position in the home by $5,000.

It's important to recognize you don't fully gain the equity in your home until it is sold. Your equity position over time will vary with home prices in your market along with the loan balance on your mortgage or mortgages.

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