What is refinancing?

Refinancing is the paying off of your current mortgage and obtaining a new mortgage to take its place. Why would you want to replace one mortgage with a new mortgage you may ask. There are many different reasons why people refinance their home mortgage loans.

The most common reason for refinancing is to get a lower interest rate.

Other reasons to refinance include: converting from an adjustable rate to a fixed rate, debt consolidation, changing the term of the loan or taking cash out in a lump sum.

In recent months the majority of refinances have been cash-out refinances. During a cash-out refinances, the original mortgage or mortgages are paid off with a new, larger mortgage. The extra amount, which reduces the equity in the home, is often used to pay off other debts, such as credit cards, as well as give some cash to the home owner.

Many people take cash out of their equity to pay for some of life's biggest expenses. With college tuition reaching record highs, some people choose to refinance with cash out to help with the cost of starting school. Other people refinance with cash out to expand their homes, often adding new rooms to accommodate their growing family. Some people will pay off other debts with cash out of their equity because interest rates for home loans are generally much lower than credit card unsecured note rates, and interest paid on your mortgage is usually tax deductible.

Over the past couple of years, many people have financed in adjustable rate mortgages because of the attractive low interest rates. Now that the fixed period is expiring, many are refinancing into Fixed rate mortgages to lock in their payments and avoid adjusting interest rates.

Identifying your personal financial goals is the best first step toward evaluating whether or not refinancing will be beneficial to you. While many borrowers seek to refinance their mortgage simply to lower their monthly housing payments, refinancing is an opportunity to make your mortgage work for you as a powerful financial tool, and not the liability that it might be otherwise.

There are so many different mortgage refinance programs for the home owner to choose from today, so many in fact that it all may seem a little confusing. Terms like ARM, Pay option, prepays all may sound confusing to the average home owner. To help guide you through the mortgage process you will want to contact a good mortgage broker. A good mortgage broker will help guide you through the mortgage refinance process and pick the mortgage refinance program that best fits your short and long term goals!

» DISCLAIMER: The information contained in this article on 'What is refinancing?' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.