Refinance

A refinance is the process of replacing an existing mortgage with a new loan, typically with different terms. The new loan pays off the current mortgage in full and establishes a new payment structure based on the terms approved by the new lender. Refinancing may be used for a variety of purposes, including changing the interest rate, adjusting the loan term, or restructuring the monthly payment.

Refinancing generally requires the borrower to qualify for a new loan, often with a lender other than the current mortgage holder. Lenders commonly evaluate factors such as income, credit history, property value, and overall financial profile. Because refinancing involves a new loan approval, it is often not available to borrowers who are already significantly delinquent or who are in active foreclosure proceedings.

In some situations, borrowers who have substantial equity in their property may explore alternative forms of financing, such as private or non-traditional lending. These types of loans may rely more heavily on property value and equity rather than traditional credit qualifications. However, private financing typically carries higher interest rates and less favorable terms than conventional loans, which can result in significantly higher monthly payments.

Refinance options, requirements, and terms vary by lender and loan program, and

approval is not guaranteed. In addition, closing costs and fees may be included in the new loan, which can increase the overall loan balance.

• New financing may fully pay off an existing mortgage, including one that is in default
• Establishes a new loan structure with lender-approved terms
   

• Traditional refinancing generally requires full credit and income qualification
• Borrowers who are currently in default may find traditional lenders unwilling to approve a new loan
• Private or non-traditional financing typically requires substantial equity in the property
• Alternative financing often comes with:
  • Higher interest rates
  • Increased monthly payments 
  • Less favorable loan terms 
• Closing costs and fees may be added to the loan balance, increasing the total amount owed.

Understanding how refinancing generally works—and how it differs from other foreclosure-related alternatives—can help homeowners better prepare for conversations with lenders or other qualified professionals when evaluating their situation.