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Buying a home is a rewarding experience. You derive a great deal of personal satisfaction from owning a home. Home ownership allows you to build up your personal net worth over time.

In addition to building up equity over time, owning a home offers significant tax breaks. The interest expense that you pay on up to $1 million in home mortgage debt is tax-deductible*, and your tax savings from the mortgage interest tax deduction are greatest in the early years of a mortgage loan. In addition to mortgage interest, it may be possible to deduct your local property taxes on your income tax return.

Finally, as a homeowner, you can tap the equity in your home in the future through refinancing, or with a home equity loan or line of credit.

When you refinance your home, you are seeking to replace your current mortgage loan with a new loan, with terms that are more favorable for your current situation.

You may choose to refinance for reasons other than getting a lower interest rate. For example, you may decide to refinance to lower your payments using a consolidation loan.

Some consolidation loans can lower your monthly payment by stretching out your loan repayment period. The net effect is that your total interest payments usually increase as a result of the longer term.

If there is enough home equity built up, refinancing can also work by allowing you to borrow additional money (“cash-out” refinancing) to pay off credit cards or other debt, or to spend the money on anything you need. Many people find that paying off debt using their home alleviates feeling “tight” every month and struggling to make separate payments that have high interest rates. At the same time, this helps to keep their credit in good standing, which leads to positioning themselves for better financial opportunities in the future.

And finally, of course, refinancing makes it possible to combine two mortgage payments into one payment, hopefully at a lower rate than the average rate of the two payments, and combining monthly payments is always beneficial in terms of saving time paying bills.

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