Refinancing is the process of replacing an existing loan with a new loan, usually with better terms or a lower interest rate. In the context of mortgages, refinancing involves paying off an existing mortgage loan with a new mortgage loan, which may have a lower interest rate, shorter or longer loan term, or different repayment terms. The primary goal of refinancing a mortgage is to reduce the monthly payments or save money on interest over the life of the loan.
When you refinance a mortgage, you essentially take out a new loan that pays off your existing mortgage, and you start making payments on the new loan. The new loan may have a different interest rate or payment structure, depending on the terms of the new loan and the lender’s policies. Refinancing a mortgage can be a smart financial move if it allows you to save money on interest or reduce your monthly payments, but it’s important to carefully consider the costs and potential risks before deciding to refinance.