Mortgage refinance
Updated
What is mortgage refinance?
A mortgage refinance replaces your existing home loan with a new one, usually to change the interest rate, the loan term, or both. The old loan is paid off in full at closing.
Mortgage refinance questions
- What does it mean to refinance a mortgage?
- It means taking out a new loan to pay off the one you already have. The old mortgage is settled in full at closing and you start repaying the new one, on whatever rate and term the new loan carries.
- What is the definition of a refinance loan?
- A refinance loan is a mortgage whose purpose is to retire an existing mortgage on the same property rather than to buy it. Lenders underwrite it like any other loan: application, appraisal, closing, and closing costs.
- How does home refinancing work?
- You apply with a lender, the property is usually appraised, and at closing the new loan pays off the old balance. You keep the house throughout. What changes is who you owe, at what rate, and over how long.
- Is refinancing worth it?
- That depends on how long you keep the new loan. The costs are paid once and the savings arrive monthly, so the question is whether you stay past the break-even month, and whether the balance is large enough to be worth re-pricing.
What it means in practice
A refinance is a new mortgage that pays the old one off, rather than a change to your current loan. That means a new application, a new closing, and a new set of closing costs.
The two common forms are a rate-and-term refinance, which changes the pricing and payoff schedule but not the amount owed, and a cash-out refinance, which increases the balance so you can take equity as cash.
Because a refinance replaces the whole balance, the new rate applies to everything you owe. If your existing rate is well below current market rates, refinancing re-prices the entire loan, not just the portion you care about.