Refinancing

With interest rates falling, homeowners not able to sell their homes, many homeowners falling victims to foreclosure, refinancing of current mortgages are in the forefront of everybody's mind.

So what is refinancing and why do people refinance their current mortgages?

To refinance is to "re-do" your current mortgage. Whether or not to refinance your current mortgage is really dependent on the homeowner's personal and/or financial situation. And, the reasons they give for refinancing are as varied as these situations. Some of the most common reasons are:

Current interest rates are too high. By refinancing you can get a better rate and by so doing you are able to lower your monthly mortgage payment. But this also depends on the terms of the loan and how long you intend to keep the property before selling it. If you are going for the long term it would be wise to refinance, otherwise be patient and wait for a time when interest rates are much lower. Remember the closing costs you have to pay when get a new loan - they play a part in the equation.

Shorten or lengthen the term of the mortgage... The most common tern for a mortgage is 30 years. However, there are also mortgages for 15, 25, 30, 40 and 50 years. By refinancing you can reduce the length of your mortgage to the time limit you think you can afford to make timely mortgage payment, e.g., from 30 years to 15 years. This way you also reduce the amount of interest you would have paid if the mortgage went to its full term of 30 years.

Take equity out of your home... Depending on your down payment, after paying mortgage for at least five years, you start to build up equity in your home. Equity is the difference between the appraised value, what your home can be sold for, and the amount you currently owe on your home. Also if property values have increased since you bought your home you could have a few thousand dollars to take out to do whatever you please - take that long overdue vacation - without worrying about taxes (please consult your tax attorney).

Convert to/from an adjustable rate mortgage... Another reason for refinancing might be to convert from your adjustable rate mortgage to a fixed rate mortgage thereby ending the uncertainty an adjustable rate mortgage carries. Or conversely to switch to combinations fixed and ARM when fixed rate mortgages are extremely high.

Improve your credit ratings... One main reason that homeowners refinance is to achieve a better future credit score rating. If you have derogatory credit information on your credit report - delinquencies, bankruptcy, late payments, judgments and/or liens on your property - the credit reporting bureaus will give you poor credit scores. Refinancing might be the only option you may have to payoff your debts, clean up your credit ratings and start your life all over.