Refinancing is often used to lower your interest rate. If rates have dropped since you last financed your home, you may want to consider refinancing. Other common reasons to refinance include paying off a balloon payment, converting an adjustable rate loan to a fixed rate loan or to extract cash equity in your home (cash out). A few reasons for cashing out include: home improvement, an education fund, and consolidating debt.Another way to convert equity in your home to cash is a "home equity" loan. A "home equity" loan is an alternative to refinancing if your home loan has a very low rate compared to current interest rates or if you have a prepayment penalty on your loan.Benefits:Reduce Your Interest RateCash Out Equity for Home Improvements Consolidate Debt Lower Monthly Payments

Before you Refinance...Be sure to know why you want to refinance: This is an important question you need to have an answer to. If its to pay high-interest loans, that is a valid concern, but if it's to simply to take an expensive vacation or buy a luxury item that's not a necessity, you may be putting yourself further into debt with nothing to show for it. There are good reasons to refinance and frivolous one; you should only refinance when the pros outweigh the cons.As the customer, you should be curious as to the penalties involves: There are a lot of rules and information tied in with your current mortgage that may seem impossible to understand unless you are versed in mortgage/real estate law. Even if this is the case, it is in your best interest to have a complete understanding of your current mortgage. There may still be penalties involved with paying of your loan early.How many points will you pay? This is an area you need to really research to see if refinancing is worth it. Points are percentage points of the value of your loan. You may think you're getting a great deal with a zero points mortgage, but is the interest rate higher to make up for no-up-front cost?