According to TILA, what does "refinance" mean?

The definition of "refinance" under the Truth in Lending Act (TILA) refers to the replacement of an existing obligation with a new one. This typically involves taking out a new loan to pay off an existing debt, thus creating a new agreement, often with different terms such as interest rates, payment schedules, or loan amounts. Refinancing is commonly done to secure better loan terms or access equity in a property.

This understanding is crucial for mortgage loan originators as it helps them assist clients in making informed decisions about whether to refinance their loans. The pursuit of better loan conditions, such as a lower interest rate or improved payment terms, is the primary motivation for refinancing. Awareness of how refinancing impacts the borrower’s financial situation and understanding TILA’s definition assists MLOs in providing accurate and compliant information to clients.