Glossary
Refinance glossary
Plain definitions of the words on a payout statement and a refinance offer: prepayment penalty, IRD, posted rate, blend-and-extend, straight switch, HELOC, amortization, discharge fee, porting and the qualifying rate.
- Refinance
- Replacing your mortgage with a new one on different terms: more money, a longer amortization or a new lender mid-term. You must qualify again.
- Prepayment penalty
- What a lender charges when you repay a closed mortgage early: usually the higher of three months' interest or the IRD on a fixed mortgage, three months' interest on a variable one.
- Interest rate differential (IRD)
- Your rate minus a comparison rate, times the amount you prepay, times the years left on the term.
- Posted rate
- A lender's advertised rate, usually well above what borrowers pay. Big banks use it to calculate the IRD.
- Blend-and-extend
- Renewing early with the same lender: no prepayment penalty, and a new rate that blends your old rate with today's.
- Blend-and-increase
- A blend-and-extend that also adds new money, usually at today's rate.
- Straight switch
- Moving the same mortgage amount and amortization to a new lender at renewal. Uninsured straight switches have been exempt from the stress test since November 21, 2024.
- HELOC
- A home equity line of credit: revolving credit secured by your home, at most 65% of its value, usually prime-based and interest-only.
- Amortization
- The total time to pay the mortgage off. Resetting it longer lowers the payment and raises total interest.
- Discharge fee
- What your old lender charges to remove its mortgage from your title when you pay it off or move.
- Porting
- Moving your existing mortgage, rate and term to a new home instead of breaking it.
- Qualifying rate
- The rate a lender tests your payments at: the higher of your rate + 2 points or 5.25%.