As the name implies, refinancing simply means obtaining new financing for something you already own (or partially own, like real estate).
It’s kind of like a balance transfer where you move your existing loan from one lender to another to get better terms, except it’s a mortgage payoff, not a credit card.
If you currently have a rate of 6% on your mortgage, but see that refinance rates are 4%, a refinance could make sense and save you a lot of money.
You’d essentially have one lender pay off your existing loan with a brand new loan at the lower interest rate.
There is also the cashout refinance, which allows you to tap into your home equity while also changing the rate and term of your existing mortgage.
So if you currently owe $200,000, but your home is worth $500,000, you could potentially take out $100k cash and your new loan amount would be $300,000.
Your monthly payments may not even go up if interest rates are favorable, and you’d have that cash to use for whatever you wish.
Be sure to use a refinance calculator or payoff calculator to help guide your decision, and consider the loan term, otherwise known as your expected tenure in the property.