About Refinancing a Mortgage

Refinancing a mortgage means getting a new mortgage that replaces your current mortgage. Reasons for refinancing typically include getting a better interest rate, getting more favorable mortgage terms or refinancing for extra cash for home improvement or debt consolidation.

Better Rates

The most common reason for refinancing is getting a lower mortgage interest rate. Refinancing is recommended when interest rates fall at least 1 percent below your current mortgage rate; otherwise the cost of refinancing may reduce or eliminate potential savings.

Exotic Mortgage Terms

If you have an adjustable-rate mortgage or a mortgage with exotic terms such as interest-only payments or negative amortization, consider refinancing to a fixed-rate mortgage. This can help you pay off your mortgage sooner while stabilizing monthly payments.

Cash Out

Depending on the amount of home equity you have, it may be possible to refinance for more than the amount needed to pay off your current mortgage. Lenders typically limit cash out refinancing to no more than 80 percent of a home's current value.

Got Debt?

Cash-out refinancing can provide funds for paying off high-interest credit cards and other consumer debt. Comparing interest rates alone is not enough for determining savings; it's also important to consider the cost of refinancing and the length of time you'll be repaying your new mortgage.

Refinancing Costs

Refinancing from one mortgage to another requires closing costs and expenses including appraisals, title documents and lender fees. It's important to estimate these costs and include them when determining possible benefits of refinancing.

Refinancing Risk

If you are considering cash-out refinancing, remember that you are increasing mortgage debt and the risk of foreclosure. If home values decrease, you could owe more than your home is worth.