Refinancing is changing the terms of your mortgage

• Refinancing a mortgage means exchanging the terms of your debt for new terms. It may seem counterintuitive that borrower will just allow someone to to renegotiate debt at more favorable terms. When you refinance a debt, you are essentially offering up your debt for any lender to buy out, and offer you terms more favorable than the ones you currently have. Since your lender will not want you to use a different company for a mortgage, they will allow you to change the terms of your debt to keep your business; oftentimes your current lender will give you the best deal on refinancing your mortgage.
  
  

When to refinance

• Refinancing is a tool used primarily to lower monthly payments and guard against risk. If interest rates have fallen since the time you got your mortgage, chances are you will be able to refinance at a lower interest rate. If your mortgage payments are too large for you to repay comfortably, you can also refinance the duration of your mortgage--that is, add years to the mortgage so that your monthly payments are lower. Another good reason to refinance is to change your mortgage from a variable to a fixed rate; if interest rates are very low and you are on a variable rate mortgage, chances are your rates will increase in the future. Refinancing to a fixed rate will allow you to lock in at low rates, even if interest rates rise.
  
  

Things to consider before refinancing

• There are costs associated with refinancing that one should consider before responding to every drop in interest rates with an attempt to refinance. Some mortgages have penalties for early payment, that may prevent refinancing from being viable, and there are often fees incurred when refinancing that can counter any savings one might gain. For this reason, consider carefully when to refinance because you will not want to incur these costs more than once. For those with very large mortgages, it is sometimes worth refinancing more often, because the amount saved in interest is usually larger relative to any transaction fees involved.