How Does Refinancing Work?

by Marianne Salina
Loan Page Columnist

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When you refinance your mortgage loan, it allows you to take advantage of improvements in your credit or drops in market interest rates in a new mortgage plan. There are different ways to refinance, all of which are aimed towards saving or earning you more money. One refinance option is called "cashing out" which means that you can take a small increase on your mortgage amount and get it out as cash. Another way to refinance is through debt consolidation. Debt consolidation will enable you to take all of your high interest debts into your refinanced loan and then save on the interest expenses. Thus, when you refinance, it re-examines your current interest rates on various consumer debts, and it can place them all under your mortgage payment at a lower, more affordable rate.

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What Does it Mean?

So, what exactly does refinancing mean? When you refinance, you pay off an existing loan with the proceeds from a new loan. And how do you determine if refinancing is a good option for you? First it is helpful if you intend to live in your home for a considerable amount of time. Also, you should be prepared to pay fees on a mortgage refinance. Last, it is important to know if the value of your home is going up or down because this will affect interest rates.

Whether you are refinancing to consolidate debt or to benefit from low interest rates, research your options and choose the best one for you!

Sources:

Refinancing, Cash Back Lower Rates, By Chris Sims, Lending Expo
About Refinancing, What Does Refinancing Mean?
Glossary of Financial Terms

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