Refinance

It gives you the chance to replace your current mortgage with a new loan having favorable rate and terms that you can afford to manage. The new loan is offered against the same property as the collateral and may or may not exceed the current loan balance. The new loan funds are used to pay down the current mortgage while any remaining cash can be used to your best advantage.
For example: Mr. X and Mr. Y both took a mortgage loan worth $400,000. After 4 years, both of them paid off $200,000. Mr. X then took another home loan worth $200,000 in order to repay the existing balance on the loan. On the other hand, Mr. Y opted for a second home loan worth $300,000 in order to repay the unpaid loan balance which is $200,000. Mr. Y could use the remaining balance in order to fulfill other financial obligations.
The first scenario is regarded as mortgage refinancing and the second scenario where the new loan amount is higher than that of the existing loan balance is cash-out refinancing.
6 Reasons for you to Refinance

• You want to save more:
  Your monthly payments will be reduced if you get a low rate or when your loan term is extended. However, with an extended term, your monthly savings will increase but you'll be paying more in total interest for the life of the loan.


• You want to pay down your mortgage quickly:
  You can shorten the length of your mortgage by reducing the loan term. Monthly payments will no doubt go up, but you will be able to save more in the overall interest payment. Moreover, you'll be debt free in a shorter time.


• You need extra cash to pay off credit cards:
  If you have enough home equity, you can borrow more than the current loan balance. With the extra cash, you can pay off high interest debts such as credit card balances or installment loans. You gain out of it as the interest on such debt is not deductible unlike mortgage interest.


• You wish to consolidate 2 loans into one:
  If there's enough equity (due to high appreciation), you can consolidate first and 2nd mortgages and refinance into a single first mortgage. The monthly payment on the new loan is likely to be lower than the combined payments on the first loan and the second mortgage.


• You want to convert an ARM into FRM:
  This allows you to lock in at a low rate. You can thus repay the loan with stable monthly payments rather than variable payments over the loan term.


• You want to get rid off PMI:
  If your current loan balance is below 80% of the new appraised home value, you can go for a home refinance and stop paying the PMI.