Some people refinance so that they can cash out some of their equity and use it to pay for something such as a new car or vacation. This is generally regarded as a bad idea. You will pay several thousand dollars for the new loan, and then you will pay interest on a larger loan amount. In the end it usually isn't worth it to take out a loan to pay for pleasure items. The long term costs outweigh the short term benefits, and you will likely end up regretting the decision.

Most homeowners refinance for one of three reasons, to pay off the lien on the house sooner, to have a lower monthly mortgage payment, or to withdraw funds from the equity built in the house. A homeowner can pay off the home sooner by refinancing a 30 year mortgage with a 15 year mortgage. On the other hand, a peoson may refinance a 15 year mortgage with a longer term loan to achieve lower monthly payments. For those homeowners who do not wish to sell their homes, they can get to the equity built up in the house by doing a Cash Out Refinance.

Debt Consolidation is another common reason to refinance. Using the equity in your home, to pay off other debts that will have a higher interest rate, is usually the reason for a debt consolidation refinance. Your Broker or Banker can explain the benefits, of this type of home refinance.

The cash taken out of your home equity should be spent improving the value of your home. Adding a pool, deck, or guest house may help preserve your equity by adding value. If you spend your equity frivolously you could end up in a bad situation.

Refinancing is not always the best answer for homeowners. When thinking about refinancing, make sure that the benefits out way the costs of the transaction. If you are refinancing into a lower rate, but plan on moving in a year, then the refinance may not benefit you as much as you think. Always consult with a mortgage professional when considering to refinance.