◈ GLOSSARY · PERSONAL FINANCE
Refinancing.
A definition, in plain English — with the books that teach it.
ClearValue Books · reviewed against sources ·
◈ DEFINITION
What it means
Definition
Replacing an existing loan with a new one, usually to lower the rate, shorten the term, or pull cash out of equity. Worth doing when interest savings clear the closing costs within your expected time in the loan — the old rule of thumb was a 1% rate drop, but with closing costs of $3,000–$6,000 the breakeven math matters more than the rule. Cash-out refis convert tax-free equity into spendable cash, which is powerful and dangerous in equal measure.
◈ IN PRACTICE
Example
A $350,000 mortgage at 7.25% refinanced to 5.75% saves about $340/month. With $5,000 in closing costs, the breakeven is 15 months — clear win if you'll stay 5+ years.
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