Refinance Loan

What is a Refinance Loan?

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A refinance loan on your home means that you are trading in your existing loan for a new one — hopefully one with more favorable terms. When you refinance your home loan, your new lender pays off your old home mortgage loan with the new loan. That, in essence, is the reason for the term “refinance” — you are financing the same home again, just with a different loan.

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Many people refinance their home mortgage loan when rates have gone down significantly from when they initially bought their home. This way, the new home mortgage loan they receive may charge them less in interest over the life of the new home mortgage loan.

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Many people take cash out of their home’s equity when they refinance their home mortgage loan, if they have a significant amount of equity in the home, either because they have been paying on their initial mortgage for several years or because their home has significantly increased in value, or both. They can use the cash they take out to renovate their home, pay off higher-interest debt or save for college or other impending major expenses.

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When should I refinance my mortgage?

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The short answer here is that you can refinance anytime when it benefits you as a borrower, as long as you have at least a six-month on-time payment history on your current home mortgage loan. Maybe that means when mortgage rates have decreased considerably. Maybe that means when you have built up a significant equity stake in your home, when a refi would serve to either shorten your loan term or to tap that equity by taking cash out at the time of refinancing. The answer to this question is different for each individual client. It is important to discuss your specific financial situation and goals with your Fairway mortgage advisor when considering a refi.