Question

To take out a new mortgage that replaces the original using the same property as security. Usually done to get a better interest rate and/or term.

True
False

Answer 1

Refinancing a mortgage involves taking out a new loan to replace the original one using the same property as collateral, typically to get a better interest rate or term.

Step-by-step explanation:

In the context of mortgages, taking out a new mortgage to replace the original one using the same property as security is known as refinancing.

Refinancing is done to secure a better interest rate and/or term, which can result in lower monthly payments and potential savings over the life of the loan. It allows borrowers to take advantage of favorable market conditions and improve their financial situation.

For example, if a homeowner originally took out a mortgage with a high-interest rate of 6%, but current market conditions offer lower rates of around 3%, refinancing would allow them to replace the original mortgage with a new one at the lower rate.