eli5 How does refinancing a house work?
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You get a new loan with better terms and the money from the new loan closes out the old one.
You might refinance due to better interest rates, or to change the length of the loan, or to get money back for other things.
Your new lender goes through an underwriting process similar to when you bought the property, new appraisal and if everything goes well they pay off your old loan. You then pay your mortgage to the new lender
Think of this way.
If you have a 100k house with a 50k mortgage, you don’t own the house. You own half of it. The bank owns the other half.
Refinancing might be for lots of reasons. Commonly it might be that you had a deal for X years with your bank and that’s coming to an end. It might be that you think the house is now more valuable, and so you think 60k would be half, so now you get some extra money for renovations.
Either way, it’s simple. The bank owns half your house. You’re slowly buying it off them, with interest.
When you refinance, a new bank buys that half off your old bank. Now a new bank owns half and you pay them back slowly instead.
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