Mortgage refinancing plays a very important role for many home owners, particularly if they are struggling financially. It is a better alternative than falling prey to foreclosure, and if better interest rates can be negotiated, the home owner may find themselves in much better circumstance. Interests rates which increase as inflation increases are not a good option for most home owners.

With a refinance the underlying loan is repaid before the end of term and a new loan is taken out. There are a number of reasons for doing this and as we said, interest rates are a key factor. If a home loan is linked to an adjustable rates mortgage, or sub-prime mortgage it can become unaffordable, particularly if the economy is bad. Many of these loans were initiated when the economy was strong and now home owners are losing their property as they can no longer afford the re-payments.

It is also a way to tap into any existing equity in the property in the case of a large financial problem or purchase, and it is also used as a way to consolidate debt or finances. There are benefits to this as well as pitfalls, and any home owner considering a mortgage refinance should be aware of both these.

It may cost as much as 3-6% to refinance a mortgage. This is 3-6% of the principal loan! On a large amount, this is a lot of money so it can be an expensive exercise. When you take out a new loan or refinance, the same steps must be followed, an application has to be made, and application fees apply, an appraisal of the property must be made as well as a title search.

It is for this reason that any home owner considering refinancing their mortgage, has to determine the reason why, and whether it will be of any real benefit.
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The chief reason why any home owner seeks to refinance their mortgage is to lower the interest rates they pay. In general terms if a refinance can lower the interest rate being paid by 2%, this is a good deal. Banks say 1%, but this leaves a very fine line in terms of real savings. Being knowledgeable as to why you want a refinance is imperative.

Saving money by lowering the interest rates you pay is the one true benefit of a refinance. It needs to be able to help you save, by lowering the monthly mortgage payments, and it has to allow you to build equity in the property.

At a 9% interest rate, over a 30 year term, the monthly re-payments on a $100,000 loan will cost you $804.62. If you refinance and reduce the interest rate to 6%, the monthly repayment becomes $599.55, which is a substantial saving. This could make all the difference between losing your property to foreclosure if you can no longer afford it.

Dan Rogers has been in the real estate business for more than 15 years. For more articles like this you should drop by his webpage which covers everything from refinance home mortgage loans to mortgage loans first time home buyer with no credit.