Refinance.

In plain English

A refinance pays off the old mortgage with a brand-new loan. People do it to cut the rate, shorten or lengthen the term, switch loan types (FHA to conventional to shed mortgage insurance), or pull out cash against equity. The new loan comes with its own closing costs, which is why the decision is a math problem: what does the new loan cost up front, and how many months of savings does it take to earn that back.

01Why it matters

A refinance done for the right reason saves tens of thousands; done for the wrong reason (resetting a 30-year clock late in the loan, rolling costs in without doing the math) it quietly costs more than it saves.

02The math, step by step

$300,000 balance at 7.5%, refinanced to 6.25% with $6,000 in closing costs. Payment drops about $250/month. Breakeven: $6,000 divided by $250 is 24 months. Stay past two years and the refi wins; sell in one and it lost money.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT