Refinance
Definition
Replacing your existing loan with a new one, usually to get a lower interest rate, change loan terms, or access home equity. You essentially pay off your old mortgage with a new mortgage. It costs 2-5% of the loan amount in closing costs.
Why It Matters
Refinancing at even 1% lower rate can save tens of thousands over the life of a loan. The rule of thumb: if you can lower your rate by 0.75-1% or more and plan to stay in the home long enough to recoup closing costs, refinancing makes sense.
Example
You have a $300,000 mortgage at 7%. Refinance to 5.5%. Monthly payment drops from $1,996 to $1,703 — saving $293/month ($3,516/year). Closing costs of $8,000 are recouped in ~27 months. After that, it's pure savings.
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