Mortgage Refinancing
Replacing an existing mortgage with a new loan, typically to secure a lower rate, lower payment, or shorter term.
What is Mortgage Refi?
Mortgage refinancing is the process of replacing an existing home loan with a new mortgage, typically to take advantage of lower interest rates, reduce monthly payments, shorten the loan term, switch from an adjustable-rate to a fixed-rate mortgage, or extract home equity (cash-out refinance). Refinancing involves closing costs — typically 2–5% of the loan amount — so borrowers calculate their "break-even point": the number of months needed for monthly savings to offset upfront costs. A common rule of thumb is that refinancing makes sense if the new rate is at least 0.5–1 percentage point lower than the current rate and the borrower plans to remain in the home beyond the break-even period.
Example
A homeowner with a $400,000 mortgage at 7.5% refinances to 6.25%, reducing the monthly payment from approximately $2,797 to $2,465 — saving $332 per month. If closing costs total $8,000, the break-even point is 8,000 ÷ 332 ≈ 24 months. If they plan to stay in the home more than two years, refinancing is financially beneficial.