– How does mortgage refinancing work, and why would a bank offer it if it saves the home buyer money?

Question

Why would a bank offer refinancing at a lower interest? Is any money saved at all, or is it just paid on a different timeline?

In: 265

Answer 1

Most mortgages can be paid off at any time — doesn’t matter whether it’s because they need to / want to move, or because they’re refinancing.

When one refinances, it’s almost always a new bank issuing a new mortgage and paying off the existing mortgage. So your current mortgage is with BigBank at 4.5% but NewBank will offer you a mortgage at 3.5%. So you get a new mortgage with NewBank who then pays off your loan balance at BigBank. And all future mortgage payments go to NewBank.