Purchase vs. Refinance
A purchase loan is a loan that you obtain when borrowing money from a mortgage lender to purchase a home.
A refinance loan is the loan you obtain when you already own a home with a mortgage and would like to refinance that existing loan into another loan.
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Reasons to Purchase
There are many reasons you would apply for a purchase loan. Purchase mortgages enable you to become a homeowner and are a critical aspect of building up your equity, sometimes referred to as your "nest egg." You can have a purchase loan without ever having to refinance; however, you can't refinance without having a purchase loan first.
Reasons to Refinance
You can choose to refinance for a variety of reasons, but the most common cause is to get a better interest rate. Refinancing for a lower mortgage interest rate would allow you to have lower monthly payments and fewer interest payments over the life of the new loan. It also provides you with an opportunity to change the terms of your original purchase loan.
You may also refinance a loan to "cash-out" or take equity from the property to use at your leisure or to make home improvements. Other reasons to refinance may include divorce or the elimination of private mortgage insurance (PMI) due to price appreciation of the property.
Find out how much house you can afford or what your monthly payment would be when purchasing or refinancing a mortgage using our Mortgage Loan Calculator.