What Is Mortgage Refinancing, How to Do It, and When It’s Worth It

We explain when it makes sense to refinance old loans, how much it costs, and in which cases refinancing may not be possible.

What Is Mortgage Refinancing

Mortgage refinancing means repaying your existing home loan with a new one for the same property. The new loan can come from your current lender or a different bank. Refinancing is also called re-lending or loan replacement.

Refinancing helps you:

• Lower your mortgage interest rate
• Reduce your monthly payment
• Change the repayment term
• Switch to a more convenient lender

Don’t confuse refinancing with loan restructuring — that means changing the terms of your current contract (usually to make it easier for the borrower). Restructuring can only be done with the same bank that issued the mortgage.

When It’s Worth Refinancing Your Mortgage

If your debt load is too high

Most experts agree that refinancing is worthwhile when the difference between your current and new rate is at least 1.5 percentage points.

Exceptions apply if you’ve already repaid more than half of the loan and are mainly paying off the principal. In such cases, refinancing makes sense only if your monthly payment has become too heavy and you need to reduce it.

When Refinancing Is Not Worth It

Even if refinancing looks attractive based on rate comparisons, additional costs can make it unprofitable. Consider these cases when refinancing is not a good idea:

• You’ve already paid off more than half of the loan. With annuity payments, most interest has already been paid, and new refinancing restarts this process.
• Your current contract includes early repayment penalties (lost profit fees).
• Your loan was issued under a subsidized or government program.
• You are near or past retirement age. Approval for a new loan becomes less likely.

Note: Mortgage refinancing is usually available only after six months of regular payments.

How Mortgage Refinancing Works

The refinancing process includes several key steps:

1. Find a bank with better terms.
   Refinancing makes sense when the new rate is at least 1.5 percentage points lower than your current one.
2. Submit your application.
   You can apply online. The bank will review your income, credit history, and other data before making a decision.
   Tip: Make sure you have no overdue payments — they can result in denial.
3. Provide property documents.
   The new bank will need up-to-date information about the property. You’ll need to order a property valuation (preferably from an accredited appraiser).
   Expenses include:
   • Appraiser’s service fee
   • New insurance policy
   • Accrued interest for the month when your previous loan is closed
4. The new bank repays your old loan and takes over the collateral.
   After checking all documents, you’ll sign the new agreement, and the new lender will pay off your old mortgage.

Main Takeaways

• Refinancing means repaying an existing mortgage with a new one for the same property.
• It’s usually beneficial when the rate difference is 1.5 percentage points or more.
• You can apply for refinancing after 6 months of regular payments.