Last reviewed: 3 October 2026
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How a mortgage refinance works
A refinance replaces an existing mortgage with a new loan. This page explains the mechanics the official sources describe: how a refinance is labeled on the Loan Estimate, the ways costs can be paid, the right to cancel, and the CFPB’s guidance on comparing costs over different timeframes. It does not say whether anyone should refinance.
What this term means: a refinance, in Regulation Z’s wording for the Loan Estimate, is a loan whose credit will be used to refinance an existing obligation secured by the property.[2]
What a refinance looks like on the form
Regulation Z requires the Loan Estimate to label the loan’s purpose as “Purchase,” “Refinance,” “Construction” or “Home Equity Loan.” It is labeled “Refinance” if the credit is not for a purchase and will be used to refinance an existing obligation secured by the property.[2] The “Calculating Cash to Close” part of the form includes a line for the “Total Payoffs and Payments” to be made to third parties that are not otherwise disclosed elsewhere in the closing cost details.[2] The CFPB describes “Estimated Cash to Close” as the amount you will have to pay at closing, in addition to any money you have already paid.[1] Two statements the regulation requires in the Loan Estimate’s “Other Considerations” part are relevant here:
- A “Refinance” statement: “Refinancing this loan will depend on your future financial situation, the property value, and market conditions. You may not be able to refinance this loan.”[2]
- If the purpose of the transaction is a refinance, a “Liability after Foreclosure” statement: a brief statement that certain state-law protections against liability for any deficiency after foreclosure may be lost, the potential consequences of losing them, and a statement that the consumer should consult an attorney for additional information.[2]
Our guide to reading your Loan Estimate walks through the rest of the form.
How the CFPB describes paying for the costs
| Way costs are handled | What the CFPB says |
|---|---|
| Points (discount points) | Points lower your interest rate in exchange for paying more at closing. One point equals one percent of the loan amount (for example, $1,000 on a $100,000 loan). Points are added to your closing costs and are listed on page 2, Section A, of the Loan Estimate; by law, points listed there must be connected to a discounted interest rate.[3] |
| Lender credits | Lender credits lower your closing costs up front in exchange for a higher interest rate, and work like points in reverse. They appear as a negative number on the “Lender Credits” line (page 2, Section J).[3] |
| “No-closing-cost” loans | Some lenders or mortgage brokers may advertise a loan with no lender fees or no closing costs. The CFPB says there are two ways lenders do this: charging a higher interest rate and giving a credit to cover the cost of making the loan, or adding the closing costs to the loan amount. A higher interest rate means you pay more over time, and a higher loan amount increases your payments and reduces your equity.[4] |
| Cash at closing | The Loan Estimate shows the Estimated Cash to Close, the amount you will have to pay at closing in addition to money already paid.[1] |
The CFPB also notes that points and lender credits are sometimes used to mean other things: some lenders use “points” for any upfront fee calculated as a percentage of the loan amount, and some offer lender credits unconnected to the interest rate. It says to ask lenders to clarify the impact on your interest rate. On the question of how long a loan will be kept, the CFPB says to ask a loan officer to show two options (with and without points or credits) and to calculate the total costs over a few different possible timeframes (the shortest, the longest and the most likely amount of time you can see yourself keeping the loan), and that you can review your options with a HUD-certified housing counselor.[3] See services you can shop for and what closing costs include.
The right to cancel after closing
The CFPB says you have the right to cancel, also known as the right of rescission, for most non-purchase-money mortgages, a category that includes refinances and home equity loans. The right gives you three business days to cancel; business days include Saturdays but not Sundays or legal public holidays.[5] The three-day clock does not start until all three of these have happened: you sign the credit contract (usually the promissory note), you receive the appropriate Truth in Lending disclosure (in most circumstances the Closing Disclosure), and you receive two copies of a notice explaining your right to rescind. The first business day after the last of these events counts as day one; if the last event is a Friday and there are no legal public holidays, you have until midnight on the following Tuesday.[5][6]
To rescind, the CFPB says you must notify your lender in writing, using the lender’s form or a letter; you cannot rescind just by calling or visiting. The notice must be delivered or mailed before midnight of the third business day. Within 20 calendar days after the lender receives the notice, all money or property you paid as part of the mortgage transaction must be returned to you. The CFPB also warns that the right to rescind does not change your obligation to pay your other loans: if you refinance and then rescind the refinance loan, you still have to pay the original loan.[5] Under the regulation, if the required notice or material disclosures are not delivered, the right to rescind expires 3 years after consummation, or on transfer of all of the consumer’s interest in the property or its sale, whichever occurs first.[7]
The regulation exempts a refinancing or consolidation by the same creditor of a loan already secured by the consumer’s principal dwelling, but the right of rescission applies to the extent the new amount financed exceeds the unpaid principal balance, any earned unpaid finance charge on the existing debt, and amounts attributed solely to the costs of the refinancing or consolidation.[7] Whether a given transaction is covered turns on its facts; see our guide to the right of rescission and ask your lender or an attorney.
How to verify this yourself
Read the CFPB pages and the regulation text in the reference list; they are the source for each statement above. Compare them with your own Loan Estimate and Closing Disclosure: the loan purpose, the points and lender credits lines, the Calculating Cash to Close table, and the rescission notice you receive at closing. Keep a copy of any written notice and proof it was delivered. A HUD-approved housing counselor can walk through the numbers with you (how to find one); for the foreclosure-liability statement or a rescission question, the form and the CFPB point to an attorney.
What this page does not cover
This page is general information, not legal or financial advice. It describes mechanics and disclosures; it does not say whether any homeowner should or should not refinance, what a refinance would cost them, or what rate or term to look for. It gives no calculator and no current rates, and it does not compare lenders. It does not cover cash-out refinances, government-program streamline refinances, mortgage insurance, taxes, or state-law differences. It does not cover the decision whether to refinance. Your own facts, your loan documents and the applicable rules determine what applies to you. The CFPB pages were last reviewed between 2023 and 2025 as noted in the references; this page was last reviewed 3 October 2026.