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Mortgage refinance involves paying off your existing loan with a new one. Many reasons to refinance involve the reduction of mortgage costs and fees, which is why it is often beneficial to the average debt-laden homeowner. With foreclosure reaching an all-time high and one million people entering into foreclosure every year, refinance is an option that prevents financial problems, debt and the loss of your home. Refinancing is similar to taking out a new mortgage, as you will go through the same application process. Your credit score, financial standing and debts will be considered before refinance can be done. Here are just some of the reasons behind wanting to refinance your mortgage. All of these implications justify refinancing with a qualified mortgage broker.

When You Need a Lower Interest Rate

If you entered into a mortgage agreement with a high interest rate, refinancing can substantially lower this fee. Homeowners with bad credit who have raised their score numbers over the past several years will find that refinancing allows them to get a better interest rate. A bad rate on a home that is often given to those with poor credit scores is 5.481 percent. An excellent rate, and one you should strive to obtain, is 4.025 percent. Lowering the interest rate is the most common reason to refinance for American homeowners.

When You Need to Lengthen the Term

For homeowners who took out their loans under a 15-year payoff agreement, it can be difficult or even impossible for them to make those expensive monthly payments. Refinancing allows you to turn a 15-year mortgage into a 30-year one, lowering your payments tremendously to make them more affordable.

When You Want to Transition From Adjustable-Rate to Fixed-Rate

ARMSs seem tempting at first because they offer lower rates to consumers. However, periodic adjustments made to these rates result in an increase in mortgage repayment. You might have taken out your current mortgage at a very low rate, only to find that the interest is killing your finances now that it’s gone up. Converting to a fixed-rate mortgage provides the stability that you need for the decades it’ll take to pay off the loan. It prevents hikes from becoming a concern, eliminates problems with mortgage repayment and eradicates the uncertainty of an ever-changing rate.

Alternatively, you may be looking to switch from a fixed-rate mortgage to an adjustable one due to the competitive rates. Fixed-rate mortgages are great when you want to get locked into an affordable rate and plan on staying in your home for as long as you can, but they can be damaging when you could potentially get a lower interest rate by refinancing to an ARM. Adjustable-rate mortgages are particularly advantageous to homeowners who don’t plan on living in their homes for very long.

When You Need to Consolidate Debt and Manage Finances

Mortgages that total more than 20 percent of your total income need to be refinanced. Debt problems often surface because of a larger-than-life mortgage payment each month. After all, if it comes down to paying your cable bill or paying your mortgage, you’re obviously going to pay to live in your home to avoid foreclosure. Unfortunately, those unpaid bills go into collections, further lowering your credit score and causing a quick-sand effect on your financial well-being. Debt consolidators will often recommend mortgage refinance to families struggling to pay their bills. You can do this by going with an extended term and lower interest rate, if possible.

When You Want to Cash-Out Home Equity

It’s rather tempting to refinance your mortgage for the sole purpose of cashing out some of your home equity. This helps other investments you’re planning to make, such as purchasing a second property or starting your own business. Cashing out on home equity should be done by individuals responsible with managing their money as it puts your security at risk if done for frivolous reasons such as buying a luxury car, purchasing a boat or paying for an all-inclusive vacation package.

Home refinance should always be done by a trusted financial institution that specializes in mortgages. You should have a clear understanding of the reasoning behind your refinance and what you expect to get out of the process.