The act of paying off one loan by obtaining another. Refinancing is generally done to secure better loan terms, such as a lower interest rate. It can also be used to payoff higher-interest debt, such as credit cards or auto loans; this way, you benefit from a lower interest rate and also from the fact that the interest you pay on your mortgage is tax deductible, while the interest that you pay on your credit cards or auto loans is not.
By refinancing you can also reduce the term of your loan. For example, if you originally took out a 30-year loan, and now you are in a situation where you can perfectly afford the higher mortgage payment associated with a 15-year mortgage, then refinancing is the way to change the terms on the loan.
Refinancing can also be used as a way to cash out some of the equity that a property has gained. This way, you take out a loan with which you can payoff your original mortgage and pocket the difference.
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