Short answer: Switching mortgage bank or renegotiating for better rate/terms. Costs ~$1,000. Worth it if savings exceed costs.
Refinancing means switching your mortgage to a different bank or renegotiating with your current one. You do it to get a lower rate, better terms, or access equity. It costs around $1,000 in legal fees. You need to compare the savings to the costs. If you save $200/month, it pays for itself in 5 months.
Current Rate: 7.5%
New Rate: 6.8%
Loan Amount: $500,000
Monthly Saving: $220
Annual Saving: $2,640
Cost To Refinance: $1,000
Payback Period: 4.5 months