When you borrow money to buy something, you agree to pay a certain interest rate. For some kinds of home loans (called "fixed-rate mortgages"), the interest rate is set when the loan starts and doesn't change. However, if loans with lower interest rates become available, you might decide that you want to "refinance" your mortgage. This means borrowing money at a lower interest rate and using that money to pay back your original loan.
For example, imagine this situation:
- You bought an office building with a loan with 6.2% interest, which was a good rate at the time.
- Five years later, interest rates have gone down to 4.5%
- You borrow the amount left on your original loan and pay it off.
- Now you have a new loan with 4.5% interest.
The object of "refinance" can be the loan itself, or the thing that you bought with the loan:
I refinanced my home.
I refinanced my mortgage.
I refinanced the loan.