Mortgage Refi Definition and Basics

What is a Mortgage Refi?

Mortgage refi refers to a transaction where you refinance your mortgage. With a mortgage refi, you get rid of an old loan and replace it with a new one. Mortgage refis can help you save money, but they have costs and risks. Let’s review the basics of mortgage refi transactions.

The Term "Mortgage Refi"

People use the term "mortgage refi" instead of using the full word "refinance". It’s just a faster way to say it. All you’re doing in a mortgage refi is refinancing.

• Refinance - Definition

Why do a Mortgage Refi?

The main reason to do a mortgage refi is to get a better loan than the one you have. You might use a mortgage refi to get a lower interest rate or a safer loan that's better for you over the long term. Compare your existing loan to a new loan to decide whether or not to move forward.

• Watch out for High Risk Mortgages

To see how your loan payments would change after a mortgage refi, use our Loan Amortization Calculator.

Mortgage Refi Costs

Mortgage refis cost money. You should expect to pay whether you see the costs disclosed or not. A lot of people think they can get a "no cost mortgage refi", but it's never true. You either pay a fee or a higher rate.

• How No Closing Cost Loans Work
• Manage Your Closing Costs

You’ll only know if a mortgage refi makes sense after you understand the loan’s costs. You might be better off staying put.

Mortgage Refi Pitfalls

Mortgage refi transactions are important. You’ll change one of the largest loans you’ll ever have in your life. Make sure you know who you’re doing business with - the mortgage refi marketplace is full of people trying to make money on big loans. Some of them will not act in your best interest.

You should also check to see if a mortgage refi increases your risk. In some states, lenders cannot sue you for any losses on a loan made for a home purchase. However, once you do a mortgage refi you give up that protection. For more information, see How Recourse Loans Work.