When a person wishes to alter the interest rate, the payment structure or another term on his current home loan, he has two choices. With the permission of his current lender, he can modify his current loan. Or he can seek out another loan from his current lender as well as other lenders. This process is known as refinancing. The interest rate a person receives on a refinanced loan will depend in large part on his credit score.
Home Loans
When a person wants to buy a home, he will often need to take out a loan to make the purchase. To accomplish this, he will need to approach a number of different home loan lenders and turn in an application. Each lender will then review the application, which will include information about the borrower's financial and lending history, and decide whether he qualifies, and if so, on what terms.
Refinancing
Refinancing is very much like taking out a new loan. Only instead of simply giving out a new loan, the new lender will also buy up and pay off the borrower's old loan, too. If a person's financial situation has changed since he took out his original loan -- for example, his credit score has improved -- he will be able to get different terms than when he applied. This may make refinancing financially beneficial.
Credit Score
Lenders use a person's credit score to help determine what kind of rates they should attach to his home loan. People with higher credit scores qualify for mortgages with lower rates, because they are at less risk of defaulting. A person who has seen his credit score rise might want to pursue a refinancing, as this may save him a lot of money over time in the form of interest payments.
Other Criteria
There are various other criteria that lenders use in addition to credit score. If a person has seen his credit score fall or plateau, he may still be able to qualify for a good rate on a refinancing if he has other strong credentials. For example, if the person has a large income, he will appear likely to pay back the debt. The same holds true if the person has enough savings or assets that he is financially secure enough to make his payments.
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