Money supply

In macroeconomics, money supply ("monetary aggregates", "money stock") is the quantity of currency and checkable deposits in the hands of the non-bank public available within the economy to purchase goods, services, and securities. The money supply affects the interest rates. The two are related inversely, such that, as money supply increases interest rates will fall. When the interest rate equates the quantity of money demanded with the quantity of money supply, the economy is working at the money market equilibrium.

The money demand market uses the same tools of analysis as to other markets: supply and demand result in an equilibrium price, where the free market (or long term) interest rate plus the quantity of real money available balances the demand for money. Short term rates are artificially manipulated by the Federal Reserve in the open market.
When thinking about the "supply" of money, it is natural to think of the total of banknotes and coins in an economy. That, however, is vastly incomplete. In the United States, coins are minted by the United States Mint, part of the Department of the Treasury, outside of the Federal Reserve. Banknotes are printed by the Bureau of Engraving & Printing on behalf of the Federal Reserve System. The Federal Reserve can also create book-keeping credits in the reserve accounts of its member banks, on the same terms as it can issue paper banknotes (by pledging collateral, usually in the form of US Treasury securities). As it always stands ready to exchange these book-keeping credits for paper banknotes, they are functionally equivalent.
In this respect, all paper banknotes in existence are systematically linked to the expansion of the electronic, credit-based money supply. Coinage can be increased or decreased outside this system by Legal Mandate or Legislative Acts. However, at present the coin base is held in check and used as a complementary system rather than a competitive system with private bank issue of electronic, credit-based money. The common practice is to include printed and minted money supply in the same metric M0.
The more accurate starting point for the concept of money supply is the total of all electronic, credit-based deposit balances in bank (and other financial) accounts (for more precise definitions, see below) plus all the minted coins and printed paper. The M1 money supply is M0, plus the total of (non-paper or coin) deposit balances without any withdrawal restrictions (restricted accounts that you can't write checks on are put in the next level of liquidity, M2).
The relationship between the M0 and M1 money supplies is the money multiplier — basically, the ratio of cash and coin in people's wallets and bank vaults and ATMs to Total balances in their financial accounts. The gap and lag between the two (M0 and M1 - M0) occurs because of the system of fractional reserve banking.

Mortgage loan

Mortgage loan is the generic term for a loan secured by a mortgage on real property; the "mortgage" refers to the legal security, but the terms are often used interchangeably to refer to the mortgage loan. Mortgage loans generally refer to a loan secured by residential property, often for the purpose of acquiring the residence. Mortgage loans may be lower priced than other forms of borrowing because the value of the property reduces risk for the lender.
Mortgage lending is the primary mechanism used in many countries to finance private ownership of residential property. For commercial mortgages see the separate article. Although the terminology and precise forms will differ from country to country, the basic components tend to be similar:
Property: the physical residence being financed. The exact form of ownership will vary from country to country, and may restrict the types of lending that are possible.
Mortgage: the security created on the property by the lender, which will usually include certain restrictions on the use or disposal of the property (such as paying any outstanding debt before selling the property).
Borrower: the person borrowing who either has or is creating an ownership interest in the property.
Lender: any lender, but usually a bank or other financial institution.
Principal: the original size of the loan, which may or may not include certain other costs; as any principal is repaid, the principal will go down in size.
Interest: a financial charge for use of the lender's money.
Foreclosure or repossession: the possibility that the lender has to foreclose, repossess or seize the property under certain circumstances is essential to a mortgage loan; without this aspect, the loan is arguably no different from any other type of loan.
Many other specific characteristics are common to many markets, but the above are the essential features. Governments usually regulate many aspects of mortgage lending, either directly (through legal requirements, for example) or indirectly (through regulation of the participants or the financial markets, such as the banking industry), and often through state intervention (direct lending by the government, by state-owned banks, or sponsorship of various entities). Other aspects that define a specific mortgage market may be regional, historical, or driven by specific characteristics of the legal or financial system.

Refinancing

Refinancing refers to applying for a secured loan intended to replace an existing loan secured by the same assets. The most common consumer refinancing is for a home mortgage.

Refinancing may be undertaken to reduce interest costs (by refinancing at a lower rate), to pay off other debts, to reduce one's periodic payment obligations (sometimes by taking a longer-term loan), to reduce risk (such as by refinancing from a variable-rate to a fixed-rate loan), and/or to liquidate some or all of the equity that has accumulated in real property during the tenure of ownership.

In essence, refinancing a mortgage or other type of loan can lower the monthly payments owed on the loan either by changing the loan to a lower interest rate, or by extending the period of loan, so as to spread the re-payment out over a long period of time. The money saved can be used to pay down the principal of the loan, thus further reducing payments. Alternately, refinancing can be used to transform available equity in one's house into ready cash, available for other purposes or expenses.[1]

Another use of refinancing is to reduce the risk associated with an existing loan. Interest rates on adjustable-rate loans and mortgages shift up and down based on the movements of the various prime rates used to calculate them. By refinancing an adjustable-rate mortgage into a fixed-rate one, the risk of interest rates increasing dramatically is removed, thus ensuring a steady interest rate over time.

Refinancing a loan or a series of debts can assist in paying off high-interest debt such as credit card debt, with lower-interest debt such as that of a fixed-rate home mortgage. The net savings between the two interest rates can then be applied either towards further paying down the debt, or other purposes. In addition, non-tax deductable debt, such as credit card or car loan debt, can be transformed into tax-deductable debt such as home mortgage debt, potentially lowering one's taxes or shifting one into a more advantageous tax bracket. This type of arrangement is often associated with a Cash-Out Refinance. [2]

Certain types of loans contain penalty clauses triggered by an early payment of the loan, either in its entirety or a specified portion. In addition, there are also closing and transaction fees typically associated with refinancing a loan or mortgage. In some cases, these fees may outweigh any savings generated through refinancing the loan itself. Typically, one should only consider refinancing if one stands to save a substantial amount of money from doing so, either in the short or long-term, or if there is a need to extend the loan in order to pay for unexpected costs such as medical expenses.

In addition some refinanced loans, while having lower initial payments, may result in larger total interest costs over the life of the loan, or expose the borrower to greater risks than the existing loan, depending on the type of loan used to refinance the existing debt. Calculating the up-front, ongoing, and potentially variable costs of refinancing is an important part of the decision on whether or not to refinance.

Refinancing lenders often require an upfront payment of a certain percentage of the total loan amount as part of the process of refinancing debt. Typically, this amount is expressed in "points" (also sometimes called "premiums"), with each "point" being equivalent to 1% of the total loan amount. Therefore, if the refinance option selected involves paying three points, then the borrower will need to pay 3% of the total loan amount upfront. Most refinancing lenders offer a variety of combinations points and interest rates. Paying more points typically allows one to get a lower interest rate than one would be capable of getting if one paid fewer or no points. Alternately, some lenders will offer to finance parts of the loan themselves, thus generating so-called "Negative points" (also called discounts).

The decision of whether or not to pay points, and how many points to pay, should be taken in consideration of the fact that with points, one tends to trade a higher upfront cost in exchange for a lower monthly premium later on. Points can be paid out of the cash saved by refinancing the loan in the first place.