The refinancing procedure is similar to the mortgage application procedure. A lender will examine your finances to determine your level of risk and eligibility for the best interest rate.

The new loan may have different terms, such as switching from a 30-year to a 15-year term or from an adjustable rate to a fixed rate, but the most common difference is a lower interest rate.

The repayment clock on your new loan may also be reset. Assume you've been paying on your current 30-year mortgage for five years. That means you have 25 years remaining on your loan. If you refinance to a new 30-year loan, you will begin again and have 30 years to repay it. If you refinance to a new 20-year loan, you will pay off your loan five years sooner.

Closing costs are associated with refinancing, which can influence whether getting a new mortgage makes financial sense for you. Before you refinance, consider how long it will take for the refinancing costs to be repaid in comparison to how long you intend to stay in the home. You'll also want to make sure you can afford the new payment and that you still have enough equity in your home.