There are many circumstances why a homeowner might consider using the equity that they have built up in their residence in order to obtain a loan. Equity is the difference between the value of your home and the amount owing on your mortgage.

Some happy reasons might include taking a once-in-a-lifetime cruise or throwing your daughter a fairy-tale wedding. A more serious reason might be a sudden illness suffered by the head of the household that prevents them from working. A source of much needed cash would really be a boon to help them through the crisis.

If you've recently welcomed another baby into your family, perhaps now is the time to add on that extra bedroom. Perhaps another bathroom would be a good idea as well. After all who wants to stand in line waiting for the shower.

The years go by so quickly and before you know it your son or daughter is finishing high school, but somehow you never got started on that college fund. Well, a home equity loan could solve that little problem.

Small business is the backbone of the country and a major employer. However small business owners often don't have access to resources of money and government programs that large companies do. Freeing up some capital by using the value in their home can really provide a boost for expansion or money to weather the recession.

Sometimes the best reason to refinance is to reduce current spending. If interest rates are currently low and your mortgage is locked in at a higher rate, then go for it. Who wants to pay more than they have to every month?

Another way to free up more spending money each month is to lengthen the term of your mortgage. Perhaps you're having second thoughts about paying your house off in fifteen or twenty years. Adding on ten years will lower your payments that's for sure. But remember the ton of money that you'll pay in interest.

There's also something called an interest-only loan that lets you get away with paying only the interest. This scenario lasts only for a fixed period of time after which you are required to pay on the principle as well. It's best to earmark the money for a specific purpose, such as investing it for your children.

A second mortgage is another way to go. In this case it could be set up as an equity line of credit where the equity in your house is used as a savings account. Some folks use this as a way to eliminate credit card loans.

As you can see there are lots of ways to go about refinancing your mortgage. Make sure that you cautiously think through all the options. Bear in mind that you may achieve your goal of freeing up money in the short term, but end up paying more in the long run.

There will be legal costs involved as well, so be sure that you intend living in your home for a good long time to make the changeover worthwhile. None of us have a crystal ball, but by learning the facts and thinking things through we can help ensure that the future is bright.