Refinancing

Refinancing

An extension and/or increase in amount of existing debt.

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Refinancing. Refinancing is the process of paying off an existing loan by taking a new loan and using the same property as security.

Homeowners may refinance to reduce their mortgage expense if interest rates have dropped, to switch from an adjustable to a fixed rate loan if rates are rising, or to draw on the equity that has built up during a period of rising home prices.

Closing costs for a refinance are generally comparable to those for any mortgage. If you're refinancing to reduce your payments, you'll want to calculate how long it will take before you recover the closing costs and begin to save money.

If you're planning to move within a few years, refinancing may not actually save you enough to justify the closing expenses. And if you refinance to use some of your home equity, you run the added risk that prices could drop and you could end up owing more on your mortgage than you could realize from selling your home.