To refinance is to pay off an existing loan and to take out or start a new loan. One is retired and a new one is created. The date when the loan was taken out will be noted in the public records as a lien will be provided by the borrower to the lender so there is collateral for the loan.

If an existing loan terms are modified then the loan terms are modified but the lien that secured the loan is not changed. It remains in place against the property with the same date.

At some level the differences have to do with the position of the lien. If you obtained a loan and provided a mortgage (technically you give the lender a mortgage on the property when they give you the loan) then it was recorded in the public records. If at some later point you took out a second loan and provided a second mortgage or you had a judgment filed against you then those liens are junior to the existing 1st mortgage. To refinance the first you would have to pay them off but to modify the terms of the first you would not need to pay off the junior liens.

Subtle differences. There are a lot fewer modifications compared to the number of times people refinance.

A refinance is a new loan paying off existing liens and, if requested and there is sufficient equity, providing the borrower with cash out for other purposes. It involves all of the same loan costs as a purchase loan although those costs may be included in the loan amount.

A modification of mortgage is a restructuring of the existing loan and involves a minimal fee to the lender. In a modification, a borrower may remit a certain amount to be applied to the principal balance and request the lender recast the loan to lower the monthly payments sufficient to pay the loan in full in the remainder of the original loan term.