A mortgage refinance replaces your current home loan with a new one. Often people refinance to reduce the interest rate, cut monthly payments, to have money for a down payment to purchase another home or investment property, to improve cashflow management, to renovate a home or for consolidating debt using the available equity from your home or commercial property. Others get a mortgage refinance to pay off the loan faster, get rid of mortgage insurance or switch from an adjustable-rate to a fixed-rate loan.

When you buy a home, you get a mortgage to pay for it. The money goes to the home seller. When you refinance, you get a new mortgage. Instead of going to the home’s seller, the new mortgage pays off the balance of the old home loan. Mortgage refinancing requires you to qualify for the loan, just as you had to meet the lender’s requirements for the original mortgage. You file an application, go through the underwriting process and go to closing, as you did when you bought the home.

Reducing your monthly payment should usually be the goal. And it’s tempting to refinance with another full 30-year term to lower your mortgage payment per month. But that means you’ll end up taking even longer to pay off your house and paying more interest over the long run.

The main benefit of refinancing is saving money; borrowers can lower their monthly payments and save thousands in interest costs by switching to a loan with a lower interest rate. Refinancing can also be a good option for borrowers looking to avoid PMI.

Anyone who already has a home loan can apply to refinance, whether that loan is held by the same bank or not . Current homeowners with a mortgage above 80% LTV (loan to value) should consult a professional before refinancing, as they may run into difficulty with borrowers owing more than their home is worth.

The length of time for a mortgage refinance varies depending on the borrower's credit score, income verification, appraisal process and other factors. A successful borrower can expect to close within 30 days.

One downside of refinancing is that it will increase the borrower's monthly payments in some cases. When interest rates are low borrowers may find that they could have qualified for a smaller loan or saved money by keeping their old rate if they had waited until rates were higher before taking out the new loan. Borrowers should also factor in any closing fees charged by lenders when refinancing into their calculations.

Another potential drawback of refinancing is that the borrower will no longer qualify for certain loan programs once they pay off their old mortgage. For example, a home owner who has taken out an FHA loan and refinances to a conventional loan will not be able to apply for another FHA loan in the future without reapplying and qualifying for the program again.

There are several different types of mortgages that are available for borrowers to refinance. They include:

Fixed-rate mortgages - These products have a constant interest rate over the life of the loan, and come with various term options ranging from 15 to 30 years. The longer the term on a fixed-rate mortgage, the lower its monthly payment will be, but you'll pay more in total interest costs over time.

Adjustable-rate mortgages (ARMs) - With this option your home's value determines how low your initial rate can be. ARMs have an initial fixed-interest period after which they adjust on specific, predefined dates called "interest rate adjustments."

Home equity lines of credit (HELOCs) - If you have equity in your home, you can use it to get a HELOC which allows you to borrow up to 80% of the value of your home. You will make monthly payments on this loan which are interest only and don't start paying down the principal until five years after closing.

However, HELOCs do allow you to access your home's equity and pay off other debt without refinancing or paying closing costs.