There are several reasons why people refinance but the main reason is: money. When interest rates drop, cases of refinancing usually increase.

Refinancing essentially means that getting a new mortgage to pay off the current mortgage. Redundant as it may seem, it does make sense if you liken it to trading in your old car for a new one. There are several reasons to consider refinancing:

v Reduced interest rates: Having financed your first home when the interest rate was at 6 percent, you recently noticed that they are now hovering around 3 percent. You might like to consider refinancing as a lower interest rate will decrease your monthly payments. However, this only proves to be effective if you plan to remain in your home for at least five to seven years as the lower payments will offset the costs of refinancing.

v Speed up equity growth: Wanting to shorten your mortgage term is possible if your financial situation has improved dramatically. You will decrease your total interest costs and own your home free and clear much sooner.

v Tap the equity: Having lived in your home for many years, refinancing can make situations such as purchasing a vacation home or sending your kids for an overseas education possible. This is because a new mortgage could save tens of thousands of dollars in monthly payments. The difference can help make those big purchases. However, keep in mind that a home-equity loan, rather than a new mortgage, may give you as much cash for fewer charges and a lot less grief.

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