Four Good Reasons to Refinance your Home

The effects of refinancing your mortgage can be dramatic, since it's a tool you can use to improve your financial situation. To take best advantage of it, look at where you are and assess your needs. Then explore the market.

Begin by asking your current lender about a mortgage refinance. They already know you, and you may get your best deal from them. But don't stop there. It's always important to shop around.

Here are four great things a mortgage refinance can do for you:

Simply exchanging a higher interest rate for a lower one will reduce your monthly mortgage payment. But you may also be able to lower your payment by changing from one type of loan to another.

Moving from a fixed rate to an adjustable rate may put more cash in your pocket each month, but it works best if you know you'll move before the initial rate ends.

If you already have an adjustable rate mortgage and your initial interest rate period is about to end, you can refinance to a fixed-rate that may save you money over time. The interest rate on an adjustable-rate mortgage can keep climbing. A fixed-rate loan takes the guesswork out of budgeting.

You can get funds by doing a cash-out refinancing, where you can draw on your home's equity by borrowing more than you currently owe. It can be cheaper than taking a home equity loan or second mortgage, which generally carry higher interest rates.

If you have enough equity in your home to cover your other debts, refinancing to get the cash may work to your advantage. It may reduce your total monthly payments and the larger mortgage may be tax deductible, an advantage not available with credit cards. To make this plan work, you'll naturally need to refrain from running up credit card debt again.

It's important to define your needs and your abilities before refinancing. Once you know what they are, it will be easy to find the right refinance mortgage deal.