Refinance Wave

DEFINITION of 'Refinance Wave'

A situation where a large amount of mortgage refinancing occurs as a result of a drop in interest rates. The larger the drop in rates, the larger the "wave". A refinance wave can be triggered by a drop in short-term interest rates, in which case borrowers might refinance out of long-term, fixed-rate mortgages into short-term, adjustable-rate mortgages. Alternatively, a refinance wave might be triggered by a rise in short-term interest rates, in which case the same borrowers who refinanced into adjustable-rate mortgages will refinance into fixed-rate mortgages to avoid further increases in the rate on their adjustable rate mortgages.

BREAKING DOWN 'Refinance Wave'

Borrowers need to be aware that refinancing a mortgage is not free - costs are frequently rolled into the new mortgage's balance. Additionally, refinancing into a new mortgage with a longer term might mean that more interest will be paid over the life of the new loan than would have been paid on the existing mortgage, even if the new mortgage has a lower interest rate.