What is mortgage refinancing?

Mortgage refinancing is the paying off one real estate mortgage loan with another mortgage loan. There are two types of mortgage refinance transactions. The first type of mortgage refinance is where the first lien on a property is paid off, and less than $2,000 of equity is taken out of the property by the borrowers, either as cash, or to pay down or off other debt, such as a HELOC, credit cards, etc. This type of mortgage refinance is also known as a rate and term mortgage refinance. Closing costs are excluded from the $2,000 and often may be rolled into the refinance.

The second type of mortgage refinance is known as a cash-out refinance. This is where over $2,000 of equity is taken out of the property by the borrowers, either in cash, or to pay down other debt. Taking out a either a second mortgage, home equity loan or line or credit at a time after the first mortgage is taken out is also considered a cash out refinance from the lender's perspective.