A refinance is a loan designed to replace a previous, older loan, but with different terms.

Quick Summary

Are you tired of your current monthly loan payments for a mortgage, auto loan, or similar type of debt? You should look into the possibility of a refinance: Refinancing is far more than just resetting your mortgage clock - it allows you to choose from loan terms in today's market. If loan rates or your credit situation have improved significantly since when you first took out your mortgage, a refinance can help you save money in several different ways – typically by lowering your monthly payments with a lower rate, although there are many possibilities. These loans work best for newer homeowners or in a market that has seen rapid improvement in the past several years.

Pros and Cons


-Great for financial management. A refinance can be a smart financial move – not only can it help you save money on your mortgage, but depending on your equity you may be able to borrow cash and use it as a loan consolidation to get rid of other debts with poor terms.

-Always an option. A refinance does not have a particular time limit: You can apply whenever you want. In fact, the longer you wait and pay down your mortgage, the better chance you often have of finding a strong refinance solution.


-Closing costs can be high. Refinance closing costs are often similar to your original mortgage, which means you may be paying thousands of dollars in fees to make the switch. Sometimes this just isn't worth saving a low amount of money every month.

-Refinances don't always save money. Lower monthly payments don't always equal savings. Resetting your loan terms or extending the life of the loan may lower your monthly payments while not affecting – or even increasing – your overall interest payments. It's important to know what you're doing.

What Else Should I Know?

There are two broad types of refinance. One is called "rate and term" and generally replaces an existing mortgage for the exact amount you owe (plus any closing fees). The other is called "cash out" and refers to borrowing more than your current mortgage and using it to pay off debt or finance a project. The most effective choice depends on your own plans for the future. Remember, you don't have to refinance with your existing lender, so shop around for different offers before making up your mind.