Mortgage term
Refinance
Definition
A refinance is breaking your existing mortgage mid-term (or restructuring it at renewal) to change the loan amount, amortization, or rate. Refinancing mid-term triggers a prepayment penalty; refinancing at renewal does not.
Refinancing lets you take equity out (up to 80% of appraised value on a conventional refi), consolidate high-interest debt, or restructure the amortization. Mid-term refinances trigger an IRD (interest rate differential) or 3-months' interest penalty, whichever is larger.
At renewal, a refinance is essentially a renewal-plus — same maturity timing, same lack of penalty, but the loan changes materially. It re-triggers the stress test for uninsured borrowers.