It is also possible to refinance your home loan for a higher amount than the previous mortgage, leaving you with money left over. This is called cash-out refinancing. When cash-out refinancing the amount of money borrowed above what is owed in the first mortgage is borrowed against home equity. Home equity is the value of your house that remains after the current mortgage is subtracted from the current market value of the home. Lenders will often let homeowners borrow up 85% of this equity in addition to the amount of the original mortgage.
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However, interest rates are not the only reason to refinance your mortgage. Many homeowners find themselves unhappy with the terms of their loans. A loan with a thirty year term may offer low payments, but those very low payments that seemed attractive can slow the process of building equity. Changing to a 15 year term will allow you to build equity far more quickly, and often the increase in monthly payments is far less than most people expect.
Mortgage refinancing is the repayment of a current mortgage using a new mortgage. This new mortgage should have an interest rate at least 2% lower than the original rate or else it may not be worthwhile for the homeowner. By obtaining a loan with a lower interest rate, you should be able to save hundreds, if not thousands the time your loan is paid off.
Also, homeowners with an adjustable rate mortgage can use refinancing as an opportunity to switch to a fixed rate. If you are uncomfortable with the risk of an adjustable rate and want to get a loan with a fixed rate while interest rates are low, refinancing your mortgage now would give you a great opportunity to do so.