Mortgage refinancing is the act of paying off an existing mortgage with a brand new one. Homeowners do this to take advantage of a lower interest rate, consolidate debt, change mortgage types, or access the equity in their home.If done carefully, refinancing can save you thousands of dollars over the course of your mortgage. If you keep the same monthly payment schedule, a lower interest rate means a larger portion of each payment is applied to the principal. This not only saves you money, but potentially shaves years off the amortization period.
Refinancing to tap into the equity of your home makes sense if you need the cash for a critical expense, or you have high-interest debt, and can pay it off with a low-interest loan from your mortgage lender.
Before you call your mortgage provider to discuss your options, it is important to remember that lenders will charge you to end your current mortgage term early. Even if you refinance with a lower interest rate, there is no guarantee that the long-term savings will outweigh the initial expense.