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What is Refinancing or Mortgage Refinancing? A Simple Explanation for Kids

What is Refinancing or Mortgage Refinancing? Borrowing 101: Easy Peasy Finance for Kids & Beginners

Introduction to Mortgage Refinancing for Kids and Teens

This video explains the concept of refinancing in a simple, concise way for kids and beginners. It could be used by kids & teens to learn about mortgage refinancing, or used as a money & personal finance resource by parents and teachers as part of a Financial Literacy course or K-12 curriculum.

What is Refinancing or Mortgage Refinancing - A Simple Explanation for Kids Teens and Beginners
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Suitable for students from grade levels:

  • Kindergarten
  • Elementary School
  • Middle School
  • High School

The topics covered are:


What is refinancing?

Refinancing or Mortgage Refinancing for Kids Teens and Beginners
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Refinancing is the process of changing the terms of an existing loan in your favor by replacing an existing loan with a new loan that has better terms.

Although refinancing is more common for mortgages, pretty much any type of loan can be refinanced, including auto loans, student loans, and personal loans.

When refinancing, the borrower’s credit worthiness and financial situation are re-evaluated to decide the new terms of the loan.

When would someone want to refinance?

If the interest rate for mortgages has gone down significantly from the time you got your mortgage, you can refinance your mortgage to save a significant amount of money on interest each month.

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Let’s say you got a 30 year mortgage 5 years ago at an interest rate of 5%, but the current mortgage interest rate is 3%. If you opt for mortgage refinancing now, you’ll save a ton on your monthly payments.

Mortgage refinancing can also help you get much better terms on the loan if your credit score has improved significantly from the time you took out the loan.

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Is mortgage refinancing free? What is the fee / charge?

No. Refinancing does cost money. The exact cost to refinance varies, but it is usually 2-6% of the loan amount.

However, some of this cost can be included in your new loan – this results in a lower upfront cost for refinancing, but increases your monthly payment.

Also, some loans have a prepayment penalty which would be applied at the time of refinancing. So when considering refinancing, make sure the benefits outweigh the cost.

Mortgage Refinancing for Kids Teens and Beginners - Interest Rate and Fees
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Other than the interest rate, what else can be changed when a loan is refinanced?

Refinancing is no different from taking a fresh loan. So virtually anything can be changed – including the duration of the loan, and the type of interest – fixed or variable.

Multiple loans can also be consolidated into a single loan when refinancing.

When I refinance, do I have to get the new loan from the same bank as the old one?

No, you have the option to get a new loan either from the same bank, or from a new bank.

How exactly does mortgage refinancing work? How can I refinance?

Depending on your reasons for refinancing, you should do some research on the available lenders and comparison-shop.

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In addition to banks, there are online lenders who specialize in refinancing and could potentially offer attractive terms.

After you choose a lender, you work out the details, provide the necessary documentation, and go through an approval process. Once approved, the lender pays off your existing loan with the new loan, effectively swapping your loans.

Conclusion

Have you ever done mortgage refinancing? How was your experience, and how much were you able to save?

Please let us know in the comments!


Download Transcript: Ideal for Use by Teachers in their Lesson Plan to Teach Kids & Teens


What is Refinancing or Mortgage Refinancing
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