Replacing an existing loan with a new one, typically to lower interest rates.
Refinancing is the process of replacing an existing loan with a new loan, usually to secure better terms (lower interest rate, shorter term, or changed repayment structure). Mortgage refinancing is most common: if rates drop, refinancing to a lower rate can save tens of thousands in interest. Refinancing involves closing costs (appraisal, origination fee, etc.), typically 2–5% of loan value; you break even when interest savings exceed closing costs (often 1–3 years for mortgages). Auto loans, student loans, and credit cards can also be refinanced. Refinancing makes sense when: rates have dropped significantly, you plan to stay in the home long enough to recoup costs, and your credit has improved. Refinancing resets the loan term; extending the term lowers payments but increases total interest paid.