A percentage drop of just one half to three quarters of a percentage point can lower your mortgage payment. If you don't refinance, you may be paying to much every month for your loan, and that's never a good financial move. There are three ways refinancing can lower your payment. The first is simply to refinance at a lower interest rate. You can also change the term on your mortgage to lower your payment. Switching from a 15- to a 30-year term can significantly lower your mortgage payment. But, if long-term savings is more appealing to you, refinancing from a 30-year to a 15-year mortgage can save you thousands of dollars over the life of your loan. The third way to lower your payment is by switching from a traditional mortgage with principal and interest payments to a mortgage program that allows interest only payments.

Think of the equity in your home as a savings account that you could access through cash-out refinance. You may want to finance an important home improvement that will increase the value of your home, pay for college or pay off high interest credit card debt. Whatever your reason, this may be the right option for you.

The difference between credit card debt and a mortgage can, financially speaking, mean thousands of dollars. Why? Credit card debt is compounded where the interest on a mortgage is simple, and often tax deductible. Using the equity in your home rather than credit cards to finance expensive purchases can save you money paid in interest in the long run. Be sure to consult your tax advisor.

Use the length of time you plan on being in your home to your best financial advantage. If you only plan on staying in your home for a few years, paying a higher interest rate for a 30-year fixed-rate mortgage may be costing you money. Consider refinancing to an Adjustable Rate Mortgage (ARM) instead, and pay a much lower amount each month. Likewise, if you have an adjustable rate mortgage and will be in your home longer than the initial 3- or 5-year fixed period, it might be a smart move to convert to a fixed-rate loan

1. When Greenspan lowers "rates," he lowers the "Federal Funds" rate. It's the interest rate at which large banks lend funds to one another and is a "short-term" rate. Mortgage interest rates are long-term - up to 30 years. Longer-term interest rates are sensitive to expectations about inflation. When short-term rates fall - like the ones the Federal Reserve controls - borrowing and spending usually increase, which can actually cause inflation. Longer-term rates, like mortgage interest rates, can rise when concerns about inflation increase.

2. Markets are often ahead of the Federal Reserve. Mortgage interest rates are determined every day in active public markets. If those markets believe the economy is slowing, interest rates may fall as markets anticipate that the Federal Reserve might lower short-term rates. This happened in the last half of 2000 when mortgage rates began steadily dropping, even though the Federal Reserve left their short-term rates unchanged. The opposite can happen as well. Mortgage rates can rise well ahead of the Federal Reserve increasing short-term interest rates.

It's almost impossible to accurately predict the future of something as complex as the U.S. economy. However, it is important that we, as mortgage consumers, understand some of these market dynamics. Sometimes, a lack of understanding can cost us a lot of money.

Sometimes it makes good financial sense to use the equity in your home to consolidate debt. Depending on your financial goals, it may be just the thing to do if you want to:

- Make your debt tax deductible*
- Pay off your credit cards
- Consolidate many small payments into one
- Reduce the interest rate on your high-interest debt
- Lower your total monthly payment amount

There are a several ways to access the equity in your home to consolidate debt:

- A cash-out refinance
- A home equity Loan
- A home equity line of credit

When you refinance to get cash out , you're essentially refinancing to a loan amount more than you currently owe and taking the difference in cash. Depending on your current interest rate, you may actually be able to lower your payment and pay off other debt with the cash. It's possible to lower your overall monthly payments with a cash-out refinance.

A home equity loan is a second loan to tap into your equity. Commonly referred to as a "second mortgage," a home equity loan allows you to get cash for your equity without refinancing your first mortgage and usually in less time. A home equity line of credit is very similar to a credit card except that it uses your equity as the revolving line of credit. You pay only if and when you use the money. You can get a home equity line of credit in as little as ten days.

When you use the equity in your home to consolidate debt , you do not reduce the amount or your debt. Instead, you lower the interest rate you pay. It's important to not run up your credit card debt again. It may be a good idea to close your credit card accounts and keep one for emergencies only. If you increase your monthly cash flow by consolidating, think about saving, investing or paying down your debt faster.

Many people routinely add $100 or $200 to their mortgage payment each month. It's a good feeling to know they are closer to paying off their home or apartment. For some of them, however, it may not be the best move, financially speaking.

Those whose mortgage interest is tax-deductible, should make another choice. Their interest payments are actually reduced by the income tax deduction. For them, funding retirement accounts is a better idea, especially if the funding is tax-free. Financial planners say safe municipal bonds offer yields that are greater than extra mortgage payments would offer.

Paying down a mortgage loan IS a good idea if your mortgage interest is not tax deductible.

In 2004, if you are married filing jointly, and your total itemized deductions including mortgage interest come to $9,700 or less, you will end up taking the standard deduction instead. You receive no tax break for your mortgage interest.

You might also want to make extra principal payments if you have an adjustable-rate mortgage. If the interest rate rises by two points or more, your monthly payments will be much higher. To offset that, you may want to reduce the balance with higher payments.

If you lack the self-discipline required to invest elsewhere, you would also benefit from extra principal payments. It's easy to procrastinate when you should be investing. But you have to write that mortgage check every month anyway, so you might as well make it a little bigger.