Refinance is basically the replacement of one debt with another, with the aim that the replacement debt has more favourable terms for the borrower than the original. With a mortgage refinance this could be in the form of a reduced rate of interest or a reduced term of repayment, or it could be changing the risk inherent with the loan and going from a variable rate loan to a fixed rate loan.
Another type of refinance mortgage is when some of the equity is a home is released to resolve financial problems or free up funds for other purposes such as home improvements.
There is usually a financial penalty for ending the original mortgage ahead of the pre-agreed time.
When refinancing, lenders often ask for a downpayment, called a premium or points. Usually, the bigger the premium, the more favourable is the interest rate. A lender may require that a certain portion of the mortgage must already be paid off before embarking on a mortgage refinance.