 TITLE: How Does Refinancing a Mortgage Work? CONTENT: Reasons to Refinance a Mortgage\n-------------------------------\nThere are several reasons homeowners choose to refinance their mortgage loans. Here are some of the top ones to think about:\n*   **Lower interest rate and payment**: If your credit has improved or market rates have dropped since you got your first loan, you may be able to save money on interest with a lower rate and monthly payment.\n*   **Cash out**: If you have significant equity in your home, you may be able to cash out a portion of it with a refinance to pay bills, finance a large purchase, or buy out an ex-spouse in a divorce.\n*   **Change rate type**: If your original mortgage has an adjustable rate, moving to a loan with a fixed rate can help you avoid market fluctuations.\n*   **Change loan term**: You can typically qualify for a lower interest rate if you shorten your loan term from, say, 30 years to 20 or 15 years. Doing so can also save you money on interest over the life of the loan. If you lengthen your loan term, you can potentially lower your monthly payment.\nAs you consider your reasons for refinancing your mortgage loan, it's also important to consider the pitfalls of the process:\n*   Lengthening your loan term can result in paying more interest.\n*   Cashing out a portion of your equity will result in a higher loan amount on your new mortgage loan, which could increase your monthly payment.\n*   There's no guarantee you'll get better terms on the new loan.\n*   If market rates have increased enough since you got your first loan, a better credit score may not be enough to help you score a lower interest rate. END