The process of replacing an existing loan with a new loan, often to secure a lower interest rate, change the loan term, or convert an adjustable-rate loan to a fixed-rate loan. Borrowers typically refinance to reduce their monthly payments or total interest paid.
Refinancing
Definition
The process of replacing an existing loan with a new loan, often to secure a lower interest rate, change the loan term, or convert an adjustable-rate loan to a fixed-rate loan. Borrowers typically refinance to reduce their monthly payments or total interest paid.
Example
Maria refinanced her mortgage when interest rates dropped, allowing her to reduce her monthly payment and save thousands of dollars over the life of the loan.
Key Points
- 1Replaces an existing loan with a new one.
- 2Common reasons include lower interest rates or better terms.
- 3Involves closing costs, similar to the original loan.
- 4Can shorten or extend the loan repayment period.
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