Reducing consumer debts will ease anxiety and open the door for better rates on a home loan or mortgage. Unfortunately, becoming debt-free is a long process, and it may take several years to achieve this goal. If you own a home, refinancing your existing mortgage even with poor credit may present extra cash to payoff high interest credit cards.

What Does it Mean to Refinance a Home Mortgage?

Refinancing a home loan is an everyday practice. There are several reasons to contemplate a refinancing. For starters, if you attain a cash-out refinancing, the mortgage company will hand over a lump sum of money at closing. Prior to this, homeowners apply for a new home loan, which replaces the old. In addition to creating a new mortgage, homeowners also borrow money from their home's equity. For example, refinancing an existing $125,000 mortgage, and borrowing $25,000 of the home's equity will produce a new mortgage of $150,000.

Advantages of Refinancing an Existing Mortgage

If your intent is to become debt-free in the shortest amount of time, refinancing your home is a great alternative. High interest credit cards are difficult to eliminate. Unless you are able to make large payments, it may take ten to twenty years to payoff a $2,000 credit card balance. Moreover, a new mortgage is great for acquiring funds to make home improvements, build a savings account, or plan for retirement. Homeowners with poor credit may increase their credit rating upon reducing or eliminating consumer debts.

When is the Best Time to Refinance?

For many homeowners, now is a good time to refinance their current mortgage. Individuals who obtained home mortgages before rates began to decline are likely paying two or three percentage points above the current average. Refinancing for a lower rate may decrease your mortgage payment. Moreover, refinancing may eliminate private mortgage insurance.

With low mortgage rates, refinancing for a fixed rate or interest-only option may be favorable. Before refinancing, count the costs. Remember, refinancing will entail paying closing costs. If the monthly savings are insignificant, or you plan on moving in less than five years, you will not benefit from a refi loan.