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Refinancing is the act of restructuring a debt or replacing it with new debt, having different terms. Borrower motivations for refinancing vary. The objective of refinancing could be to lower monthly debt payments, to reduce interest expense, or perhaps to increase borrowing. Refinancing is routine with residential mortgages, but can occur with any type of debt and debtor. A mortgage that is a refinancing of an existing mortgage is sometimes called a refi mortgage, or simply refi, as opposed to a purchase mortgage. Mortgage refinancing is highly cyclical, tending to rise when interest rates are falling. In a mortgage refinancing transaction, the term cash out refinancing describes a situation when a homeowner uses accumulated home equity as collateral for additional principal. Typically, refinancing a mortgage has significant transaction costs. An exception is what is called streamlined refinancing, when the borrower slightly changes terms with the same lender, often receiving only a lower rate. The typical streamlined refinancing dispenses with much of the documentation and closing costs associated with a typical mortgage refinancing transaction. |
