Refinancing is paying off one loan by obtaining another and is usually done to secure better loan terms, such as a lower interest rate.  The most common consumer refinancing is for a home mortgage. 

A loan can be refinance to take advantage of a better interest rate which will result in either a reduced monthly payment or a reduced term.  Borrower can also have a loan to reduce the monthly repayment amount and to consolidate other debts into one loan, which will result in a longer term.  The loan can also help reduce or alter the risk by changing from Adjustable Rate Mortgage to a Fixed Rate Mortgage.   

As a borrower, you should carefully consider the terms of a refinance as well as the long-term impact on your financial situation.  You should shop as carefully for your refinance loan as you did when you bought your home.  Refinancing can deplete the equity you have built up if you take out the equity in your home in cash, and it can negatively affect your ability to pay your loan if you do not closely review the terms of your new loan. You have to consider the disadvantages and the advantages of the loan terms.  You have to consider your ability to pay and your monthly income to know if you can cope with the monthly mortgage payment.   

On the positive side, if you shop carefully for your refinance, you could lower your monthly payments by getting a lower interest rate. You should look onto the package of every mortgage loan so that you have the options to choose the best term that suits your budget.  As the borrower, you should understand everything before you commit yourself to take the loan.

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