Refinancing
Replacing an existing loan with a new one, usually to get a better rate, lower payment, or different term.
Refinancing pays off the current loan with a new one — typically to capture a lower interest rate, shorten or lengthen the term, switch from variable to fixed (or vice versa), or pull out equity as cash. It comes with new closing costs, so it only pays off if the savings outweigh those costs before the loan is paid off or sold.
Worked Example
Refinancing a $300,000 balance from 7.0% to 5.75% might save around $220/month, but with $6,000 in closing costs, it takes about 27 months to break even — worth it only if you plan to keep the loan (or the home) longer than that.
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