Diff b/w purchase and refinance transaction?

Hi Venkatesh,

Welcome back to forum.

Purchasing a loan means to borrow a certain amount of cash for the purpose of buying a property. The borrower must return the amount after a certain specified period and should also pay an interest fee for it.

While refinancing is the process of substituting an existing loan with a new loan. By this process, the first loan is paid off with the proceeds obtained from the new loan. Refinancing is usually done to get a lower interest rate on the loan.

Purchase transaction means that you are going to buy a home and need a loan for that purpose. But refinance means that you have a mortgage and you want to take a different mortgage by paying off the existing one from the proceeds received from the new mortgage.

Miller

Many think that if you had a mortgage previously, paid it off and after few years again want to take a mortgage then it will be considered as a refinance since you had taken a mortgage earlier.

This is a wrong concept.

It will not be considered as refinance but a new mortgage as the previous loan was paid off in full and when the new mortgage is being taken there is no mortgage on the house.