Refinancing

Refinancing means getting a new mortgage and using some or all of the proceeds to pay off the old mortgage. Homeowners may refinance for several reasons:

• To take advantage of lower interest rates and lower your monthly payment.
  If interest rates have gone down since you obtained your original mortgage, you could save money over the life of your loan, while reducing your monthly mortgage payment.

• To switch mortgage types.
  You may want to switch from a variable to a fixed interest rate, or vice versa. If you have a balloon/reset mortgage, you must either pay the mortgage in full at the end of the 5- or 7- year term, start procedures to reset your mortgage to a fixed-rate mortgage, or refinance with a new mortgage.

• To shorten mortgage terms.
  You may want to refinance to shorten the term of your loan. This would allow you to pay less interest over the life of the loan because the money is borrowed for a shorter period of time, and builds up equity in your home more quickly.

• To get "cash out."
  Some lenders will let you borrow more money than the balance of your original mortgage, based on the equity you have in your home. A portion of the money left after the original mortgage is paid off goes to you to use for things like paying for a child's education or home remodeling. However, remember that you'll have a new mortgage, at a higher amount, that will eventually need to be paid off.

The Refinancing Process

Refinancing is very similar to getting the first mortgage on your current home. You should follow the same steps as when you obtained your original mortgage.

• Research mortgage products.
  Look at the different types of mortgages and compare each to find which works best for you.

• Work with a lender.
  Find a lender and know what lenders look at when evaluating mortgage applicants.

• Apply for a mortgage.
  Know the steps in the application process.