Due to a variety of circumstances, more and more people are getting deeper into debt than ever before. As a result, many are seeking alternatives for dealing with their financial problems – ways they can consolidate their debts. One way to do this is by refinancing their home.

Refinancing offers you a way to consolidate high-interest debts, like credit cards, using the equity in your home. Mortgage interest rates are half (or less) that of many credit card companies, plus you can deduct the mortgage interest you pay yearly on your income tax return.

Whether or not refinancing is right for you depends on your indebtedness and the amount of equity in your home. You’ll want to see a mortgage lender to find out exactly how much money you’ll save every month by refinancing.

Most homeowners with an adjustable rate mortgage can also benefit from refinancing into a fixed rate mortgage. Most ARM’s have a very low rate for the first one or two years, then the adjustment period begins. The adjusted rate can make a big difference in the monthly payment, so refinancing to a fixed rate can help save you money.

Again, you’ll want to consult with a mortgage professional to get the details for your specific situation. But in most circumstances it’s wise to refinance out of an ARM.

Have you seen commercials about interest-only mortgages… the ones where you’re told about what a wonderful benefit it is to have a super low mortgage payment and all the wonderful tax write-offs you’ll receive?

Before you decide to jump into an interest-only mortgage, take a few minutes to enlighten yourself a bit about them.

Think about this… if you just pay the interest on your home, will you ever start paying on the principal and will you ever have any equity in your property?

By definition, a mortgage is a “temporary conditional pledge of property to a creditor as security for performance of an obligation or repayment of a debt.”

Or, putting it simply, that means you borrow money from a financial institution and they essentially buy your house and you pay it back. But how can you pay it back if you’re just paying interest?

More accurately, interest-only mortgages are a temporary reprieve for paying off a traditional mortgage. You may actually be prolonging the inevitable and eventually making it even more expensive to pay off your mortgage.

Far too many people are in debt way over their heads because of interest-only mortgages. They took advantage of what appeared to be attractive offers to ‘buy now and pay later.’

With an interest-only payment you’re keeping the principal at the full loan value and every penny you pay is interest. With a more conventional mortgage you’d be slowly paying down the total mortgage amount.

Most interest-only payment schedules are offered on Adjustable Rate Mortgages (ARMs), but they can also be found on fixed rate mortgages. Interest-only payment periods almost never run for the entire term of the loan which is normally 15 or 30 years.

Depending on the terms of your mortgage, you could be expected to start paying on the principal in five, seven or ten years. Once the interest-only period ends, your monthly payment will go up because then you’ll be paying on both principal and interest.

On the other hand, interest-only mortgages can be a good thing for some people. For those people wanting to purchase a bigger/better home for a lower down payment AND who anticipate moving within seven years, the interest-only mortgage method may be the way to go.

However, keep in mind that in a “down” real estate market you generally won’t be building any equity and making money by doing it this way. The majority of the money made from investing in real estate comes from an increase in value to the home.

The average person moves every seven years anyway. The days when people stay in a home thirty years or more are gone. So if you anticipate moving before you’ll have to start paying on the principal, then an interest-only mortgage loan may be ideal for you.

There’s a lot of fine print to any mortgage. Evaluate your own goals and be vigilant when reviewing the terms on the loan you’re considering before acting.

A Fixed Rate Mortgage, unlike an ARM, has a steady interest rate for the entire life of the loan, usually 30 years. This type of rate is perfect for those who like to budget their monthly expenses and who plan to keep their home for a number of years.

There are advantages and disadvantages to each type of loan, so it’s best to discuss your personal financial situation with your mortgage lender and get his/her advice about which is best for you.

When looking at getting a mortgage, there are some terms that you should familiarize yourself with so you know what your mortgage lender is talking about. Below is a list of the most commonly-used “mortgage phrases” and their meanings to help you understand them better:

Adjustable Rate Mortgage (ARM) – A mortgage in which the interest rate is adjusted periodically based on an index.

Appraisal – The determination of property value based on recent sales information of similar properties.

Asset – Valuable items, encumbered or not, owned by a person, corporation, or entity.

Biweekly Mortgage – Mortgage loan payments that requires a payment twice monthly, yielding thirteen payments per year instead of twelve. This significantly reduces the time a principal is paid off.

Closing – Final arrangements to transfer title of property as well as allocate charges and credits.

Closing Costs – Closing costs are fees paid by the borrower when a property is purchased or refinanced. Costs incurred include a loan origination fee, discount points, appraisal fee, title search, title insurance, survey, taxes, deed recording fee, and credit report charges.

Credit Report – A report to a prospective lender on the credit standing of a prospective borrower. Used to help determine creditworthiness. Information regarding late payments, defaults, or bankruptcies will appear here.

Debt-to-Income Ratio (DTI) – The ratio of aggregate monthly debt to aggregate monthly income.

Down Payment – Money paid by a buyer from his own funds, as opposed to that portion of the purchase price which is financed.

Earnest Money Deposit – A deposit made by a potential home buyer to show that they are serious about purchasing the property.

Equity – The difference between the current market value of a property and the principal balance of all outstanding loans.

Fixed-Rate Mortgage – A mortgage where the interest rate does not change for the life of the loan.

Good Faith Estimate – An estimate of charges which a borrower is likely to incur in connection with a loan closing.

Gross Monthly Income – The total amount the borrower earns per month, not counting any taxes or expenses. Often used in calculations to determine whether a borrower qualifies for a particular loan.

Interest Rate – The percentage of an amount of money that’s paid for its use over a specified time period.

Lender – The bank, mortgage company, or mortgage broker offering the loan.

Loan – The principal, or amount of total borrowed money, that is repaid with interest.

Loan Officer – An intermediary between lending institutions and borrowers, loan officers solicit loans, represent creditors to borrowers, and represent borrowers to creditors.

Loan-To-Value Ratio – The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage. A LTV ratio of 90 means that a borrower is borrowing 90% of the value of the property and paying 10% as a down payment. For purchases, the value of the property is assumed to be the purchase price, for refinances the value is determined by an appraisal.

Mortgage – A legal document that pledges property to a creditor for the repayment of the loan, and is the term used to describe the loan itself.

Mortgage Broker – A mortgage company that originates loans, joining the borrower and lender for a real estate loan, earning a placement fee.

Origination Fee – The fee imposed by a lender to cover certain processing expenses in connection with making a loan. Usually a percentage of the amount loaned.

Pre-Approval – A term used to mean that a borrower has completed a loan application and provided debt, income, and savings information that has been reviewed and pre-approved by an underwriter.

Principal – The amount of debt, not counting interest, left on a loan.

Purchase Agreement – A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

Refinancing – The process of paying off one loan with the proceeds from a new loan, using the same property as security.

You’ll probably hear several of these phrases from your mortgage lender when getting a loan. Whenever you don’t understand something, be sure to ask him or her to explain it in layman’s terms to be sure you understand the whole mortgage process.

There are various types of mortgage lenders. A mortgage lender can be any institution, such as a bank or mortgage company, or even an individual, who has the financial capacity to lend money to the borrower.

The key to selecting a mortgage is to choose the one that best fits your needs, so look for a mortgage lender that has the ability to lend you the amount of money you need at a reasonable interest rate.

The most common and well-known mortgage lender is a bank. You can choose your local bank as your mortgage lender for reliability, convenience and quick approval on loans.

You can also obtain a mortgage through a mortgage broker, an agent who acts as a middleman and finds an appropriate loan to fit your needs. He or she shops around to get you the best interest rate and type of loan for your personal circumstances.

Whatever type of mortgage lender you choose, your credit history will have an influence on the placement of a mortgage and availability of money. Many times people who are denied a loan by their bank can get one through a mortgage broker.

Because mortgage brokers are agents for numerous mortgage companies they have more flexibility than banks. A mortgage broker’s job is to find a loan based on your credit rating and personal financial situation.

Whichever form of mortgage lender you choose, be sure to do your homework before making a final decision. Get the names of mortage lenders or brokers from friends or relatives.

As a final step in the process, be sure to check the mortgage lender’s credentials so you can be certain that your financial transactions will be secure and dependable.

You really have to pay attention to these things. After all, it’s your money that’s at stake if things don’t go smoothly. Make sure you feel comfortable with your mortgage lender.