Bad credit to good credit, home refinance?

I am buying a house with my husband but our credit is less than stellar. We were approved for a loan but with a nominally high (6.75) interest rate and the monthly payment is doable but will have us paying more than 3 times the value of the home over the course of the mortgage. Our credit is at such a state that it will be repaired in about a year or two and we will be back to the excellent credit scores we had before my husband lost his job. What exactly is refinancing? Does it involve a lender paying back the entire principal of the loan and clearing our name with the current lender, and then relending us the money with more attractive numbers? If so, what are the chances of us being able to do that? How does it work?

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