How Mortgage Refinancing Works

Refinancing means taking out a new loan to pay off your existing mortgage. The new loan typically has a different interest rate, term, or balance.

Common Reasons to Refinance

• Lowering the interest rate: Securing a lower rate can reduce monthly payments and total interest costs.
• Shortening the term: Moving from a 30-year to a 15-year loan to build equity faster and save on total interest.
• Changing loan types: Switching from an Adjustable Rate Mortgage (ARM) to a Fixed-Rate Mortgage.
• Cashing out equity: Borrowing more than you owe to access cash for renovations or debt consolidation.

The Cost of Refinancing

Refinancing involves closing costs similar to those of an original mortgage. These costs must be weighed against the expected savings to determine if refinancing makes financial sense.

You can test scenarios in the Refinance Calculator.