Every month you sit down at a table and write out checks to your mortgage, auto, and credit card companies. Refinancing could lower your monthly debt service and free up cash for investment, paying off debt, making home improvements, or paying tuition.

Refinancing to Save Money

One of the biggest reasons homeowners refinance their mortgages is to obtain a lower interest rate and/or lower monthly payments. There are several ways to lower your payments: by refinancing to a lower rate, by stretching out your balance over a longer term, by taking a refinance loan with low minimum payments (some of the new option ARMs guarantee low rates / payments for several years), or by taking a cash-out refinance and paying off other higher interest debt.

Even if rates have not dropped significantly you may be a candidate for refinancing if your credit was subprime but has improved enough to allow you to refinance to an FHA loan. FHA refinance loans allow you cash out as much as 95% of the value of your home.

Debt Consolidation One

Debt consolidation can be accomplished in two ways: A cash-out refinance or a second mortgage. If you can improve the terms of your current first mortgage and have enough equity, you may be able to create a much more attractive financial picture by wrapping all that debt into one better loan. There are great calculators online that can show you when it makes sense to refinance your first mortgage and when it's smarter to take a second mortgage to get restructure your debt. A good financial professional can also help you with this decision.

Debt Consolidation Two

A debt consolidation second mortgage loan comes in two forms: a fixed rate second mortgage or a home equity line of credit (HELOC). They work well when you like the terms of your current mortgage or don't have enough equity to be approved for a new first mortgage. Fixed second mortgages deliver a lump sum at closing and are best for debt consolidation. The rate and payment are fixed, making for easy budgeting, and the cost of obtaining these loans is low. HELOCs are ideal for situations that require flexibility. They can be drawn on like a credit card, paid back, and reused. HELOCS make good loans for recurring expenses like tuition but are less appropriate for debt consolidation.

While using your home to restructure your debt and lower your payments has a lot of advantages, including possible tax benefits, lower rates, and more stability, there are pitfalls too. If you're in financial trouble, unsecured debt may be written off or discharged in a bankruptcy. If you secure that debt with your home and can't make the payment you could lose the roof over your head in a foreclosure. If you're unsure, a trusted financial advisor can help you find the best way to lower your payments.

About the Author - Joy Breiling has been employed with the mortgage industry since early 1997.  During her career, Joy has fulfilled many positions; including Operations Manager of a large Bay Area broker office. She is currently licensed with the California Department of Real Estate and is an active mortgage originator.