A home loan refinancing occurs when someone with an existing mortgages gets a new mortgage to replace it. Funds from the new mortgage are used to pay off the old mortgage.
A number of circumstances could lead to a decision to refinance, such as:
The existing mortgage has a higher interest rate than a new mortgage.
The value of the mortgaged property has increased in value and the borrower wants to use some of the new equity for other purposes. So, he gets a larger mortgage than the one he now has and takes cash out.
The existing mortgage is “under water” and the borrower wants to correct it with a HARP refinance. (link this to the harp article).
The existing mortgage has only a few years left. The borrower wants to use the equity he has in his home for other things or he wants to reduce his monthly payment. So, he gets a new mortgage with a lower monthly payment or takes cash out.
If you are “under water” with your current mortgage (meaning that your mortgage balance is greater than the value of the property), then you may qualify for a HARP Refinance. There are a few conditions that must be met. So, you will want to work with a lender who can manage these with you. But note that a HARP refinance will not reduce the amount you owe; it will just make servicing the loan more affordable. That is, it will lower your monthly payments.