People who have an existing mortgage should seek to keep their homes even in stressful economic times. Allowing your mortgage companies to foreclose your property is a bad idea. If you did not already know, not doing anything just grows your debt exponentially because of interests being compounded. If you can no longer afford your monthly mortgage payments, there’s a better way to keeping your property than doing nothing: refinancing.

A simple way of understanding what refinance means is it is taking out a second mortgage to then pay off the existing mortgage. Recently it is not always the situation as it is being used as troubled debt restructuring which is allowing creditors to collect on a bad debt and giving the debtors some relief from their debt.

Under those circumstances it is possible to refinance by playing with three key factors of interest. Those are the principal, period for repayment and the interest rate. After applying to refinance your mortgage then the present value of that loan is calculated and this value consists of the original unpaid principal of the original loan, accrued interest and any applicable fees.

Market rates tend to fluctuate up and down so refinancing is a good move when they are down. Interest rates can be negotiated after the new principal is fixed. Generally interest rates that banks go by are the current going rates and they go by that. When borrowing rates are down, that is a good time to refinance. The one time that you can renegotiate them is to restructure a troubled debt.

In all cases, when a refinance bears a lower interest rate than the original mortgage. This allows the debtor more affordable monthly payments. During times when market rates are high, creditors make up for the difference by allowing a longer repayment period.

Over the life of the refinanced mortgage, your creditors are likely to have made more money in interest. That doesn’t, however, make it an option you would generally think twice about, especially if your existing mortgage is already in trouble. The incremental increase in total interest you pay until the mortgage is paid off is almost always a bargain. If the exchange value you get is being able to afford your monthly payments and keep ownership over your home, it is worth it.

In recent times however, refinancing a mortgage has taken on a new purpose for homeowners. Although it is still primarily a means to restructure troubled mortgages, some homeowners actively consider refinancing as a way to actually save on interest payments. In this case, homeowners and their creditors play with the same factors – principal, interest rates and repayment period.

Many homeowners choose to renegotiate their existing mortgage to take advantage of the low interest rates and in doing so also shorten the repayment time period, assuming that they can comfortably afford the higher payments each month. This also is favorable to the bank or mortgage company, since repayment is speeded up thus reducing the risk of defaults and foreclosures. Banks in particular like cash versus inventory as it costs more to upkeep.

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