Recommended sites for refinancing:
Really Great Rate - Refinance at the lowest rates!
- Banks compete over you.

Refinance

What does it mean to "refinance"? Refinancing is simply getting an entirely new mortgage to pay off your previous one. If you have a good amount of equity (what you own minus what you owe), you can usually get a sum of cash in the deal - entirely tax free! Let's use an example:

Say you buy a house for $100k. You put $20k down and you take out a mortgage for $80k. Your mortgage is for 30 years and has a fixed interest rate of 7%. After 10 years of property appreciation (your house increasing in value) and paying off the loan, your house is now worth $150k, and you only owe $68k on your mortgage. (At this point, you have $82k worth of equity in your home - $150k minus $68k). Interest rates have gone down, your credit score has gone up and you realize that you also want some cash to pay for a new kitchen. So, you decide to refinance.

You shop around and find a 20 year refinance loan for $90k with a fixed interest rate of 6%. Your monthly payments only go up by $100, but you also put some cash in your pocket. How much cash do you walk away with? Well you are getting $90k, but you have to use the first $68k to pay off your original mortgage. So, you are left with $22k to spend or save however you see fit. The best part of all is that your $22k is not taxable! You keep the entire thing (according to the tax laws at the time of writing, 2008). You spend $10k on the kitchen and then the other $12k on a... motorcycle? That's more like it.

So what should you be looking out for when shopping around? Well first off, check to see if there are any pre-payment penalties on your current mortgage. Call up your lender and ask what happens if you decide to refinance. They will generally try to get you to refinance through them, but make sure you talk to more than just one agent. See what your current lender can offer you, but check some other places out to ensure you are getting the best deal.

If you think that refinancing is a good idea for you, start by getting a few quotes at some of the following resources:

Really Great Rate - Refinance at the lowest rates!
- Banks compete over you.

Don't know which financial tool is right for you?
Our Financial Analyzer will point you in the right direction!