Mortgage Refinance Terms Glossary

Additional Principal Payment

A payment above the required monthly amount that reduces the principal balance directly. Making additional principal payments reduces total interest paid and shortens the loan term. Even small additional payments early in a loan term have a significant compounding effect on payoff timeline.

Cash-Out Refinance

A refinance in which the new loan is larger than the existing mortgage, and the borrower receives the difference in cash. The cash can be used for home improvements, debt payoff, or other purposes. Most lenders require at least 20% equity to remain after the cash-out.

• Cash-Out Refinance program

Debt Consolidation

Combining multiple debts into a single loan, typically at a lower interest rate or with a lower monthly payment. Homeowners often use a cash-out refinance or home equity loan to consolidate high-interest credit card debt, auto loans, or student loans into a single mortgage payment. Reduces complexity but extends repayment and uses home equity as collateral.

• Cash-Out Refinance program

Forbearance

A temporary pause or reduction of mortgage payments granted by the servicer when a borrower faces short-term hardship. Missed payments are not forgiven. They are typically added to the end of the loan, repaid in a lump sum, or worked into a repayment plan once the forbearance ends.

Loan Modification

An agreement between a borrower and lender to permanently change one or more terms of an existing mortgage, such as the interest rate, remaining term, or principal balance. Used to help borrowers facing financial hardship who cannot make their current payments. Distinct from refinancing, which replaces the existing loan with a new one.

No Closing Cost Loan

A loan in which the borrower does not pay closing costs out of pocket. Costs are either covered by the lender in exchange for a higher interest rate (lender credit) or rolled into the loan balance. Reduces upfront cash needed but increases the long-term cost of the loan. Worth calculating the break-even compared to paying costs upfront.

No-Closing-Cost Mortgage

A loan where closing costs are covered by the lender in exchange for a higher interest rate, or by rolling costs into the loan balance. Reduces cash needed at closing but increases the total cost of the loan. Worth calculating the trade-off between upfront savings and long-term cost.

Payoff

The total amount required to fully satisfy and discharge a mortgage loan, including the outstanding principal balance, accrued interest, and any fees. A payoff quote is provided by the servicer and is valid for a specific date. Payoffs are required when refinancing, selling, or satisfying a loan early.

Prepayment

Any payment made to reduce the principal balance of a loan before it is due. Prepayments can be made as additional monthly contributions, lump-sum payments, or full payoffs. Most conventional and government loans allow prepayment without penalty. Prepaying reduces total interest paid and shortens the loan term. The servicer must apply prepayments to principal.

Rate Buydown

A payment made upfront to reduce the interest rate on a mortgage for the life of the loan (permanent buydown) or for an initial period (temporary buydown). Sellers sometimes offer a 2-1 buydown as an incentive to attract buyers.

Refinance

Replacing an existing mortgage with a new one, typically to secure a lower rate, change the loan term, or access equity. Common types include rate-and-term refinance, cash-out refinance, and streamline refinance.

• Refinance Calculator

Reissue or Refinance Rate

A discounted rate for title insurance available when a property is being refinanced and the lender's title policy from the original purchase is still valid. The refinancing lender requires a new lender's policy, but the reissue rate (typically 30 to 40% less than the full rate) applies when the property has been insured within a recent period. Not all title companies offer reissue rates.

Rescission Period

A 3-business-day window under the Truth in Lending Act during which a borrower can cancel certain refinances or home equity loans on a primary residence without penalty. Does not apply to home purchase loans. The lender cannot disburse funds until the rescission period expires.