Refinancing your mortgage is the process of paying off an existing loan with the proceeds from a new loan, and using the same property as collateral. As part of a co-ordinated strategy, refinancing your mortgage can play a central role in your journey to financial freedom. Suze Orman, in her 9 Steps To Financial Freedom, explains that holding high interest debts is not respectful to yourself or your money.

Mortgage refinancing can be an intelligent financial move for borrowers. However, it may not be the best strategy for those unsure of what it is and how it works. Make sure mortgage refinancing is part of a strategy for getting out of debt. To actually save money you must secure a low interest rate; if the interest rate on the new mortgage is less than the old, the loan costs less and you save money.

Refinancing can also be a means of replacing high-interest debt with a loan that has a lower interest rate. Unsecure loans, like credit card debt and personal loans, have higher interest rates than loans secured by property. Consolidating those loans at a lower interest rate can reduce the monthly interest bill and allow you to pay off the principal faster with the money you are saving on interest.

Mortgage refinancing can also be used to switch from a fixed to variable rate, or vice versa, or to eliminate a balloon payment. Refinancing throws open numerous alternatives to borrowers, where other conventional lenders may have turned their backs. If you are in peril of missing a monthly payment due to circumstances beyond your control, refinancing can decrease payments and also may be able to provide a cash-out bonus to cover any missed payments, depending on your situation.

Refinancing is generally handled by direct lenders (banks, credit unions and finance companies) or mortgage brokers. These lenders supply the money. Refinancing is pretty much like applying for a mortgage all over again, just as you did when you bought your home the first time.

Refinancing is actually applying for a new mortgage, so you may have to pay many of the same fees associated with the original purchase of your home, including an application fee, title search and title insurance fees, a loan origination fee and legal service fees. Moreover, the contract for your existing mortgage may provide for a prepayment penalty. In most cases, you can apply anytime (during your loan) for refinancing, but if prepayment penalties apply for the first few years, you may need to wait a while to make refinancing viable.

Mortgage modification and refinancing are longer term solutions that are best suited for situations like the loss of one's job, divorce, or long term disability. If the homeowner's ability to make money will be compromised for a long time, it is important to restructure the mortgage as soon as possible.

Refinancing usually makes sense when there has been a drop in interest rates and you want to lock in a new mortgage at a lower rate for a longer term than your existing mortgage, or when you need to access some of your equity. It can also benefit those who want to refinance their mortgages for a longer term to lower their monthly payments. Remember that lowering your monthly payments will only help you to achieve financial freedom if you divert the money you save into reducing debt.

Interest rates have been low for the last couple of years and the refinance industry has been booming. Many people have taken advantage of these rates to lower monthly housing payments, pay off credit card debt faster, and in general pay less for the privilege of borrowing money. Ideally, these savings should be turned to paying off thos debts faster. Sadly, not everyone understands the steps to financial freedom.

You need to figure out if mortgage refinancing will prove to be worth the time and money that it will cost you. Interest rates are likely to increase at some time in the future; make sure that you take a fixed rate or make allowances for higher repayments later in your financial plans.

Consider carefully the costs and risks before refinancing your mortgage. As part of a clear financial strategy, mortgage refinancing can possibly help you to become debt free sooner.

Read Suze Orman's 9 Steps To Financial Freedom