Homeowners often decide they would like a different loan, or they want to pay off their home faster to acquire more home equity sooner. Refinancing can be a wise choice for a number of reasons and will allow you to adjust or add to your current loan.

Refinancing, also called a second mortgage, will replace the first mortgage. You can expect to go through the application process again as you did with your first loan, although it will probably be much easier if you have already gone through the process for a previous mortgage.

Refinancing can do many beneficial things for you and your financial situation. It can reduce your monthly mortgage payments by lowering your interest rate from what it was before, extend the payment plan, change your loan from adjustable to fixed-rate or balloon to fixed-rate, shorten the term of the loan to lower your interest life, allow you to pay off your mortgage faster, and/or give you more equity and therefore more cash for other expenses or loans that have materialized.

You have the option of obtaining either a rate-term refinance or a cash-out refinance. The rate-term option simply changes the terms of conditions of your mortgage, such as lowering the interest rate, extending the mortgage or switching from one kind of loan to another. The cash-out refinance gives you more money than you received from your previous loan and is converted to cash for you to take and do with what you please.

Keep in mind that if interest rates are ½ percent to 5/8 percent lower than your current interest rate, it is probably a good time to refinance since the rates are so much lower. Don’t get a second mortgage merely on this principle, however, because there are many factors and variables that you will want to consider.

Taking out a second home loan is as big of a purchase as your first home mortgage was, and you want to make sure it is a decision you will be happy with in the future.