You may already be considering re-financing your home because you have heard about the benefits. Although there may be situations where re-financing does not make sense, there are so many where it does, that it pays to take a look at this solution. In re-financing your home, you may be able to lower your monthly payments and pay off some other debts. Using your home as a financing option is usually the lowest cost way of raising funds. Examine these benefits to see if it would work for you.

Lower Your Monthly Payments

This is usually the most attractive benefit of re-financing to most homeowners. If you, like many homeowners, are living paycheck to paycheck and barely making the mortgage, you will welcome the chance to reduce that payment. If current interest rates are lower than the existing rate on your home loan, re-financing will lower your payments because of the lower interest rate.

Here is how this happens: when you make your mortgage payment each month, the payment is divided into two parts; part of the money is used to pay down the loan itself, and part of the money is used to pay the interest on the loan. Since you are now paying less interest, your payment will go down, and the amount you pay on the principal of the loan will go up. This lowers the balance on the loan, further reducing the monthly payment. When you re-finance, what you do is take out a new loan and repay the old higher interest loan with the proceeds of the new loan. If you have had the first loan for a while, most likely you will have paid down some of the principal. So when you re-finance, you take out a smaller loan and save even more on monthly payments.

Consolidate Your Debt

Re-financing a home may be the perfect way to consolidate your debt. If you have credit card debt that is at high interest rates, you may be able to pay them off with the proceeds from your loan and then just make the payments on your home loan at a lower rate. If you have additional equity in your home, you can pay off the first loan and perhaps some high interest rate loans such as credit cards, auto loans, student loans or other debts.

Sometimes, however, refinancing for debt consolidation will not result in lower total monthly payments, but will simply reduce the number of payments that have to be made. This helps some homeowners who have a hard time paying all those bills.

Another advantage of consolidating your debt is that you will have fewer checks to write out each month. Paying down the bulk of your other loans and only having one check to write on your home loan can give many people a lot of peace of mind. Writing out dozens of checks each month can be upsetting and even if the total amount is the same, it can feel like more when you have to write a lot of checks.

Use the Equity in Your Home

Another reason for re-financing is that people realize that the value of their home has increased, or that the principal has been paid down to a certain extent and they can re-borrow on that principal. What the homeowner will then do is "cash out" this equity in the home. Many people use this cash to make home improvements such as an addition or a new kitchen, but as long as the equity covers the amount of the loan, the money can be used for any purpose, including starting a business of one's own, taking a vacation, or paying for college. the purpose of the loan is unimportant, since the loan is being granted on the value of the house. Another option is a home equity line of credit, which is not a single disbursement of the loan, but rather a credit line that can be drawn against in gradual payments for various needs.