Yes, you're right, gains in USD terms when refinancing a mortgage denominated in another currency are taxable.

Interestingly, such gains aren't taxable at the (usually lower) capital gains tax rate, but they're taxable at the (usually higher) regular income tax rate.

Seems like it would be wise for Americans living abroad to get USD-termed mortgages ("Foreign Currency Mortgage" as far as the UK lender is concerned).