refinancing

Refinancing is the process of replacing an existing loan with a new loan that has different terms. It is commonly used with mortgages to secure a lower interest rate or reduced monthly payments, but borrowers may also refinance auto loans, student loans, or other debt to change the cost, term, or repayment schedule or to access additional cash.

Common forms include rate-and-term refinances, which adjust the interest rate and/or repayment period without increasing the loan amount; and cash-out refinances, which borrow more than the outstanding balance and take the difference as cash. There are also streamlined or government-backed programs for mortgages designed to simplify qualification and closing.

Benefits can include lower monthly payments, reduced total interest, converting from a variable to a fixed rate, or extracting home equity. Costs, however, must be weighed: closing costs, points, and appraisal fees; and extending the term can increase total interest paid. Refinancing can reset the payoff clock and may require sacrifices such as temporarily paying private mortgage insurance or new eligibility criteria. There is also the risk of losing equity if property values fall.

Process typically involves evaluating current loan terms and financial goals, shopping for multiple lenders, and gathering documents such as income verification and asset statements. After applying, the lender reviews credit, income, and collateral; an appraisal may be required. If approved, closing finalizes the new loan and pays off the old one. The borrower then begins payments on the new loan under the new terms.