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A mortgage refinance is the the process of buying a new mortgage, either to lower your interest rate, shorten or lengthen the term of the loan, or to pull out any equity you may have built up in the property either by simply making principle payments or by the properties value going up. Let's take a look at what is involved with a refinance, and whether or not you may want to consider refinancing.

Types Of Interest Rates

Mortgage interest rates are either of two basic types. Fixed or Adjustable. A fixed rate loan will have the same interest rate at the beginning of the loan as at the end, no matter what interest rates are at. An ARM or adjustable rate mortgage on the other hand, will start out at a set rate for a set period called the introductory period. Then the rate will go up or down according to current rates. If you have an ARM that is getting close to the end of the introductory period, you may want to refinance into a fixed rate loan, as the ARM can and probably will continue to rise past current rates.

Consolidation Loans

Another situation that you may want to look at refinancing is if you have accumulated a lot of high interest debt such as credit card debt. With this type of refinance, more commonly called a consolidation loan, you can either refinance your mortgage or if you have enough equity built up, take out a second mortgage to pay off higher debts. A great benefit of this type of loan is the fact that now you can write the debt off on your income taxes. Beware though, too many times people end up in the same position again down the road with high credit card debt, and now a second mortgage as well.

A similar situation is a cash out refinance. with this arrangement, you refinance, and pull out any equity you may have built up over the years. The cash you pull out is typically used to pay for college, or remodeling projects.

Mortgage refinancing is a great way to improve the terms of a less than desirable loan you may have currently. The rule of thumb is to refinance if the current interest rates are 1.5% to 2% below the rate you are currently at. Any less than that and any savings you may receive will be offset by closing costs.

Lenders offering refinancing are very easy to find, and in fact, they will compete for your business. Many Internet sites will submit information you supply to many lenders who will in turn give you quotes that you can then choose from.

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