Refinance can be as baffling as your fist mortgage. The resolution to refinance your house is based on number of factors. Some of them are for how long do you plan to reside in that house, what would be the difference in the interest rates if you take a fresh loan and whether you want cash refinance. Primarily refinancing is to replace your existing loan with another but with different terms and conditions.

Advantages

Another benefit of refinance is that the reduction in risk related to the current loan. Interest rates for adjustable-rate loans and mortgages fluctuate based on the movement of various factors. By refinancing an adjustable-rate mortgage into a fixed-rate one, the risk of interest rates increasing dramatically disappear, thus ensuring a steady interest rate over time. This flexibility comes at a price as lenders typically charge a risk premium for fixed rate loans.
You can take the advantage of the lower interest rates to reduce your installments or if you have enough equity in your property then you can have an added advantage of discontinuing the payment of your mortgage. If you are keen on taking advantage of the lower interest rates you would have to close your loan by paying remaining dues. This holds true even if you have opted for no cash / less cash conclusion of the loan.
If you are not sure if you are going to reside in the house for a longer period then the lower installments of refinancing wont suffice to the closing cost. Hence you need to have some extra amount in your account when you take this decision.

When you opt for the cash out refinancing, what you really do is mortgage for more than what you owe currently and pay the difference between two. For example: You are still in debt of 90000$ on a house of 160000$ and wish to reduce the current interest rates as well wish get some 20000$ cash (to renovate your current office space) or to clear off some previous debts. In this situation you can opt to refinance your current mortgage for 110,000.This way you can get desired interest rate on the 90,000$ that you still owe for the house and still manage to get 20,000$ cash to spend as you desire.
Cash-out refinancing is different from home equity loans in two ways. Firstly home equity loan is a fresh loan with addition to your previous mortgage while the cash out substitutes the previous mortgage. Secondly the interest rates on home loans are higher than that of the cash-out refinancing loan.

RISKS

Most refinancing loans contain a clause called as the penalty clause also known as the “call provision” that become active if payments are done after the due dates. These loans provide, at best, a short-term solution and in some cases when borrowers default on loans they are sold up by the lender before the loan term finishes. So one needs to be careful and read all the clauses before signing the documents.

Secondly while some loans may have lower down payment, and lower interest rate the result may make you realize that the total costs over the loan’s life have extended over the principal amount. Doing your maths is important to calculate the up-front, the existing, as well as the future costs to get a clear picture. This factor will assist you greatly during your decision of refinancing..
According to research it was found out that some brokers have charged fees to borrowers of more than 20 per cent of the existing equity in their homes. So here lies a risk while one is applying for a loan. One needs to be careful so as not to fall in these traps.