Mortgage Glossary
Refinance
Replacing your existing mortgage with a new one — often to get a lower interest rate, reduce your monthly payment, or access your home equity.
What It Means
Refinancing means paying off your current mortgage by taking out a new one, usually with better terms. Common reasons to refinance:
- Lower your rate: If rates have dropped since you bought, refinancing can save you money every month
- Lower your payment: Extending your term can reduce monthly costs
- Shorten your term: Switch from 30 to 15 years to pay off faster
- Cash-out refinance: Borrow against your equity to fund renovations, pay off debt, or invest
- Remove PMI: Once you have 20% equity, refinancing can eliminate mortgage insurance
Refinancing comes with closing costs (typically 2–3% of the loan), so it's important to calculate your break-even point.
Real-World Example
"You bought at 7.5% and rates drop to 6.25%. Refinancing a $300,000 balance could save you $250+ per month — paying back closing costs in about 18 months."
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Definitions are for educational purposes only and do not constitute financial or legal advice.