Deciding to refinance
When you refinance your home, you seek to replace your current mortgage loan with a new loan that has more favorable loan terms. Usually, you refinance to pay off a higher-interest rate loan with a loan that has a lower interest rate.
However, you may also decide to refinance to replace a fixed-rate mortgage loan with an adjustable-rate loan, or vice versa. After you refinance, the new lender holds a mortgage lien on your home.
When you refinance, you can choose to borrow just enough to pay off the mortgage balance you owe. If you have enough home equity built up, you may also be able to borrow an additional amount in what is called a "cash-out" refinancing. You can use this extra amount to pay off other debts such as an auto loan or credit cards. You should evaluate a cash-out refinancing carefully.