Finance
How does refinancing work?
Refinancing means replacing an existing loan with a new one, usually to get a lower interest rate, smaller payments, or different terms. You take out a new loan to pay off the old one — common with mortgages when rates drop.
See it in motion.
Watch a 2-minute animated lesson that shows exactly how refinancing works.
Step by step
- 1You replace an old loan with a new one.
- 2Goals: lower rate, lower payments, or new terms.
- 3It's common with mortgages when rates fall.
- 4Fees mean it's only worth it if savings outweigh costs.
Frequently asked questions
- How does refinancing work?
- You take out a new loan to pay off an existing one, ideally with a better rate or terms.
- Why do people refinance?
- Usually to lower their interest rate or monthly payments, or to change the loan's length.
- Is refinancing always worth it?
- Not always — closing costs and fees can outweigh savings, so the math depends on rates and how long you keep the loan.