Refinancing is when you renegotiate the terms of a loan. In reality, refinancing is actually taking out a new loan and paying off an existing loan with the proceeds. One common reason for refinancing is because interest rates have gone down considerably. By continuing on with your current loan terms you will lose money by paying more in interest than necessary.

Let’s start with three important concepts that will come into play when you refinance your mortgage. By understanding these concepts, and keeping them in mind when choosing a mortgage lender and mortgage terms, you’ll be more likely to make wise decisions.

1. The Term of Your Mortgage
When you hear the phrase “mortgage term,” it usually refers to the length of time (and other conditions) you will have to repay the mortgage loan. For instance, a 30-year mortgage loan is a common term. With this option, the borrower has 30 years to repay the mortgage loan — unless, of course, he or she chooses to refinance it first.

2. The Interest Rate
All loans have interest rates associated with them, and mortgage loans are no different. When you obtain a mortgage loan, the interest rate is one of the primary “ingredients” that determines the monthly amount you will have to pay. When it comes to mortgage refinance, interest rates are a key motivator for many homeowners. When you refinance a mortgage and obtain lower interest rates as part of that refinance, you stand to save a lot of money over the long haul. But you need to be in the home (and maintain the new mortgage) for a certain period of time before you reach the “break even” point. After this point, your interest savings will make the cost of refinancing worthwhile.

3. Other Mortgage Expenses
A third piece of the mortgage puzzle to bear in mind is the cost of obtaining the mortgage. This cost is largely determined by the various fees associated with mortgage loans. If you are considering a mortgage refinance, then you have already been through at least one mortgage process in the past. So you probably remember all of those fees and costs that you had to pay on your mortgage — above and beyond the principal loan amount and interest.
Basic Elements of Mortgage Refinancing