When you refinance your mortgage, you are paying off your existing loan and replacing it with a new one. There are many reasons why individuals refinance, such as the opportunity to obtain a lower interest rate, the desire to convert from an adjustable-rate mortgage to a fixed-rate mortgage, the chance to shorten the term of their current mortgage, the opportunity to cash out your home’s equity in order to finance a large purchase, and to consolidate debt. Many homeowners want to pay their home off faster with a shorter term loan and will take advantage of refinancing for this reason.
There are Pros and Cons to all of the above reasons. Refinancing can cost 3% to 6% of the loan’s principal and requires an appraisal, title search and application fees, as the original mortgage did. It is important for a homeowner to determine whether his/her reason for refinancing is truly beneficial.