A refinance, often shortened to “refi”, is when a consumer secures an entirely new loan to replace an existing loan. Refis come in two main types: “Rate & Term” (R/T) and “Cash Out” (C/O). R/T refis are just normal refis and what you should assume someone means when they refer to refinancing. C/O refis are when a consumer “pulls money out” by securing a new loan larger than the loan they’re paying off and pocketing that difference.
Reasons to Refinance:
The most common reason to refi is to lock in lower interest rates because it’s essentially free money. However, there are a few other key reasons a person may benefit from a refi:
MI Removal
Access Cash for:
Down pmt on new home
College tuition (or it’s debt repayment)
Business purchase(s)
An important distinction is the new loan has nothing to do with the old one. Thus, the new loan is acquired to payoff the old one in full, and all ties with the old lender are cut.