What Is Refinancing?
Refinancing means replacing your existing mortgage with a new loan, typically to get a lower interest rate, change your loan term, switch from adjustable to fixed rate, or tap into your home equity (cash-out refinance). You go through a new application, appraisal, and closing process.
Key Facts
- The general rule: refinancing makes sense if you can lower your rate by at least 0.5% to 1%.
- Refinancing has closing costs (typically 2-3% of the loan) — factor them into your break-even calculation.
- Cash-out refinancing lets you borrow against your equity for renovations, debt consolidation, etc.
- You'll need to re-qualify based on current income, credit, and home value.
- Refinancing restarts your amortization clock — a 30-year refi after 5 years means 35 total years of payments.
Real-World Example
You bought at 7.25% three years ago. Rates have dropped to 5.75%. Refinancing your $560,000 balance saves you about $530/month. Closing costs are $12,000. Break-even: about 23 months. After that, it's pure savings.
Why It Matters
Refinancing can save you hundreds per month and tens of thousands over the life of your loan — but only if the math works. Always calculate your break-even point and consider how long you plan to stay in the home.
En Español
Refinanciar significa reemplazar tu hipoteca existente con un nuevo préstamo, típicamente para obtener una tasa de interés más baja, cambiar el plazo del préstamo, cambiar de tasa ajustable a fija, o acceder al valor acumulado de tu casa (refinanciamiento con retiro de efectivo). Pasas por una nueva solicitud, tasación y proceso de cierre.