Refinancing involves taking out a new loan to pay off and replace one or more existing loans. Borrowers commonly refinance mortgages, auto loans, and student loans to achieve specific financial goals:
1. Rate-and-Term Refinance: Replacing a loan to secure a lower interest rate, switch from an adjustable to a fixed rate, or shorten the loan term (e.g. converting a 30-year mortgage into a 15-year mortgage). 2. Cash-Out Refinance: Borrowing more than the current outstanding mortgage balance and pocketing the difference in cash based on accumulated home equity for home renovations, debt consolidation, or emergency reserves. 3. Cash-In Refinance: Paying down a lump sum of principal at refinancing to lower the LTV ratio below 80% and eliminate PMI.