What Is Loan Refinancing

Simply put, mortgage refinancing refers to replacing your old mortgage loan with a new one. There are many reasons to consider refinancing, but most people do it to reduce their interest rate or monthly payments. Most lenders classify mortgage refinancing into one of three categories:

Common goals from refinancing are to lower one's fixed interest rate to reduce payments over the life of the loan, to change the duration of the loan, or to switch from a fixed-rate mortgage to an adjustable-rate mortgage (ARM) or vice versa.

Rate-and-term refinance refers to the refinancing of an existing mortgage for the purpose of changing the interest and/or term of a mortgage. This mortgage-refinancing option—the new mortgage is for a larger amount than the existing loan—lets you convert home equity into cash.

You can refinance to change your interest rate or loan term. Refinancing can bring down your monthly payments, reduce your overall interest payments, or let you access your home’s equity. Refinancing is not always the way to go; do some calculations beforehand to confirm if it’s right for you. Own a home? Congratulations!