What does it mean to “refinance”?
The term refinancing means taking out another loan to replace the original or previous loan. The purpose of refinancing is for the borrower to receive a better interest rate on their loan.
Is refinancing right for you?
Oftentimes, refinancing a mortgage is a good option for a borrower who has already paid off the original loan. Instead of creating an entirely new mortgage, the borrower is able to take out a second loan on the original mortgage. This often leads to lower interest rates. Refinancing is an ideal option for borrowers with good credit scores, but for those with less than stellar scores, it can be a risky action.
If you find it difficult to make high mortgage payments, refinancing might be something to consider. If you can receive a new interest rate that is better by at least 2%, it is generally recommended that you try to refinance and reduce your current interest rate.