Rate and Term Refinance

A Rate/Term Refinance with 'No Cash Back' is when you only get enough money to pay off your existing loan plus closing cost and nothing more. You may also include the payoff of a second mortgage if it is more than a year old, and was used as part of the original purchase or improvements of the property. In some cases you can also get cash out of the transaction as long as it does not exceed the lesser of $2000 or 2% of the loan amount.

Cash Out Refinance for Remodel / Major Purchase / Pay For College

A "cash-out” refinance can be a good idea for homeowners who want to draw on the equity built up in their property to get cash for a major purchase or for their children's education. However cash out refinancing is more advantageous when the item that was purchased has a similar expected life as the loan. Making improvements to your property or purchasing a second home are examples. Since the interest on a mortgage is comparatively low, borrowing money against your home proves to be very sound. Interest on a mortgage is also usually tax deductible. (Check with your accountant for specific deductions as it pertains to your situation)

Debt Consolidation

An additional or a 'Second' mortgage can be used for paying off high interest debts such as credit cards, personal loans, car loans. The interest on second mortgages is usually tax deductible up to 100% of the value of the property. You can also consolidate debt by refinancing your existing first mortgage. You should be aware of the benefits and potential pitfalls of doing such a thing. For instance, if you have 20 years left on your existing mortgage and you take out a new mortgage for 30 years at a rate that is 1% more than your existing, you would want to take a look at the total interest and payments on the debt you are consolidating to make sure that this is a feasible option. You also want to consider the ramifications of treating the symptom and not the problem. If after paying off credit card debt with a mortgage secured by your home you run up the balance on your credit cards again, you have not solved a problem, but in fact you have created a new one.

Investments

Many individuals choose to use the deductibility of mortgage interest on their primary residence as a means to provide the down payment for investment, or income producing property. Often, mortgage insurance is required for loans with less than a 20% down payment. Using the equity in one property to purchase another could actually save money on a monthly payment with the alleviation of mortgage insurance.