The term "refinancing" is actually a bit misleading. When you refinance your mortgage, you don't do it again. You are effectively replacing your current mortgage with a new loan. This may be a different lender than the one you originally worked with to buy the house.
Mortgage refinancing allows you to borrow with your own capital, lower your interest rate, and change your mortgage before maturity.
Mortgage refinancing is when you pay off your current mortgage and replace it with a new one.
This new mortgage may have a higher mortgage balance in order to borrow more money, or it may have a different interest rate, term, or mortgage type. How a mortgage refinances works is that it allows you to replace your old mortgage, and it's needed if you want to change certain specifics of your mortgage.
The refinancing process is similar to your original mortgage application process. A lender will review your finances to assess your level of risk and determine your eligibility for the most favorable interest rate.
The new loan might have different terms — moving from a 30-year to a 15-year term or an adjustable rate to a fixed rate, for example — but the most common change is a lower interest rate.
Shopping for a competitive refinance rate can save you money both upfront in closing costs and over time in monthly payments. Comparing rates and exploring the different options available to you are wise steps, as your refinanced mortgage will replace your existing loan.
Given how interest rates have spiked over the last year (and may continue into next year), you may also wish to explore a rate lock on your next mortgage. A rate lock is a guarantee that a mortgage lender will honor a specific interest rate at a specific cost for a set period. This protection can help to stabilize your monthly payment during volatile interest-rate times.
Substantial changes to the mortgage agreement require refinancing of the mortgage. This is because a mortgage is a contract with a fixed period of validity. To end your contract, you must pay off your current mortgage by financing it with a new mortgage, called a mortgage refinance.
Mortgage refinancing is required whenever you want to make significant changes to your mortgage agreement, whether or not your mortgage can be renewed.
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