How are these advantages possible AFTER a mortgage has been signed? Help needed as I’m trying to wrap my head around financial mechanisms – why is this a thing and under what circumstances/ conditions does a refinancing make the most sense to use?
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Because you can get a lower rate and save many thousands over the term. Obviously this only works if the new rates are much lower or you want to go to a shorter loan perhaps. In addition to the great answers here, I also want to mention that when you refi, you end up resetting the loan term (schedule) if you don’t go for a shorter loan. That’s a reason why banks are always promoting refinancing, especially to older loans at a higher rate. Interest on loans is front-loaded so the bank makes a lot of money in the first several years. I have many friends who “lowered the monthly payment by hundreds!” not realizing a big part of that is also the fact their 30 year loan they were 5 years into was just reset again to 30. When I refinanced, I kept paying my old payment amount for additional principal. When I did the math for mine, I’d be paying the loan off about 2.5 years faster than my original 30 yr loan (from 25 years remaining to 22.5).
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