Mortgage refinancing is nothing more than just taking out a new loan. In other words it is paying off one or more old debts by getting a loan. In some cases, refinancing could really save your money. You could be able to have lower monthly payments, pay less interests or convert from 30 year loan to 15 year one and thus build your equity faster. However you have to be sure that refinancing is the best option for you.

1. Refinancing is a good idea for you only if you:

- want to get out of high interest rates and take advantage of lower rates. It is a great idea if you are planning to stay in the home long enough in order to make some additional fees worthwhile.

- currently have an adjustable rate mortgage, but want to have a fixed rate one in order to have the certainty of knowing exactly what the mortgage payment will be for the life of the loan.

- want to convert your mortgage to an adjustable rate loan with lower rate of interest or much more protective features.

- want to build up equity faster by converting to a loan with shorter terms.

- want to draw on the equity built up in your home in order to get some cash for a purchase or for your children’s education.

2. Situations where mortgage refinancing could save you money:

- refinancing unsecured loan with higher interest rates with unsecured loan with lower interest rate if the terms of the loans are comparable and new rate is lower than your current rate.

- refinancing secured loan if the new loan is for the same length of time left your old loan and the interest rate on new loan is lower than the interest rate on your current loan.

- you can use mortgage refinancing in order to pay off expensive credit card or car loans.

In fact, mortgage refinancing could be worthwhile, however it does not always make good financial sense for home owners. The rule of thumb is that refinancing becomes worthwhile only if your existing interest rate on the mortgage is at least 2 per cent higher the prevailing market rate. As a rule, the figure is accepted as the safe margin while balancing the costs of mortgage refinancing against the savings.

In some cases, refinancing is a great way to resolve some financial problems. But, in some cases, refinancing could make your financial problems even worse. If you think that in your case refinancing is not the best option, you can ask your lender to get some of the new terms you want by consenting to the modification of your loan.

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