Millions of American homeowners now find themselves with mortgage rates that are less than optimum. If you are one of these homeowners, one way to put yourself back into a better financial situation with your mortgage is to refinance. Though it’s not for every homeowner and anyone considering it needs to weigh all the factors, for those it fits refinancing can save them a lot of money in the long term.

In its most basic form, refinancing is the process of renegotiating the loan to lock in a lower interest rate and more favorable terms overall. The end result is that you lower your monthly payments, the overall cost of your home, or both. Just like the original loan, your home will be used as collateral to insure the loan against default. Here are some common reasons that owners find for refinancing a home.

It can lead to higher savings rates. Since you are paying less each month in the form of a mortgage payment, you can invest more into retirement accounts and other high yield investments.

Perhaps the owner wants to pay the home loan in full and the current terms do not lend themselves to this task. By refinancing the loan to a shorter term loan and paying more each month, you can pay off the mortgage sooner and remove this liability from your portfolio.

Refinancing can also allow you to cash out equity on your home and enjoy a quick infusion of cash you can use for something else. One great use of this cash is to pay off other high interest unsecured loans such as credit cards, whose interest is not tax deductible.

Many people find themselves burdened with two mortgages. Refinancing is the best way to consolidate these into one single loan.

If you took out an adjustable rate mortgage only to regret the decision later, refinancing can allow you to convert the loan to a fixed interest rate.

You will receive the best benefits from refinancing if you have gained some amount of equity in your home. These days that can be tough depending on your market, but if you can do it you will enjoy greater benefits from the refinancing. Another consideration is to make sure you are refinancing when rates are at their lowest. If you think the rates will continue to drop, be patient. A little patience could pay off big a few months later. Make sure you stay up to date on your payments as many lenders will not allow you to refinance if you have been late in the last 12 months.

You can also improve the terms you will be offered by cleaning up all the little problems on your credit report. Taking a few months to make sure your situation is perfect will save you more in the form of lower interest than rushing into the refinancing. Refinancing will always be an option, especially if you keep your financial situation in order.