Getting a new mortgage to replace an old one is called mortgage refinance. Homeowners usually begin this process when interest rates have dropped so that they can obtain a better rate on their loan that results in reduced interest rates and monthly payments.
In the refinancing process, the first loan is paid off, which allows the second loan to be created. Refinancing is an excellent way for property owners to convert a variable loan that has payments that change according to prime rates, to a fixed rate. Because refinancing usually results in reduced mortgage payments, the process frees up money, allowing homeowners to pay all their bills on time or ahead of time and increase their credit score. This, in turn, eventually leads to the ability to obtain other loans at lower rates. Lower interest rate can have a profound effect on lifestyle, giving individuals potential savings of hundreds of dollar per year.
Reasons to refinance including obtaining money for large purchases such as new vehicles or to reduce credit card debt. Refinancing is also used to provide money for home improvements, which ultimately affect the value of the property.