Refinancing a home has many benefits. Not only can it shorten the life of your loan, but it can get you a lower interest rate, help you convert your equity into cash that you can use for home improvements, and help you to stabilize yourself financially.

Your home is a major investment, and a smart one. But not understanding the terminology associated with your refinance can make the process feel more like torture than something which will benefit you.  While you can't know absolutely everything about mortgage refinancing, you can arm yourself with enough knowledge to let your lender know that you are aware of what is happening. Here are some of the more common mortgage terms, so that you can familiarize yourself before heading into your lender's office.

Common Terms
Let's start with the process you're about to begin, which is mortgage refinancing. Refinancing is what happens when you pay off one mortgage with the proceeds of another. A refinance can occur for many reasons, including the need to complete some home renovations, debt repayment and saving money on your monthly payments.

An appraisal will determine whether or not you qualify for a loan. This is a written analysis of your property's estimated value, usually prepared by an official appraiser.

Your credit report will reveal your financial risk factor to your lending company. The report shows your entire history of borrowing and repaying money.

The interest rate is how much interest your loan acquires over one year, and is based on a percentage of 100. The lower the interest rate, the better, as this will also mean a low monthly payment.

The term of your loan is the time period, which can be anywhere from 5 to 30 years, depending on the lender you've chosen.

Points are amounts paid to your lender with the purpose of lowering the interest rate on your home loan. One point equals one percent of your loan amount. There are two types of points. Discount points result in the lender paying more at closing and the reduction of your interest rate. Origination points work in the same way, but are used to cover the expenses of loan processing.

Your home's equity, also known as owner's interest, is the difference between the amount left to pay on your mortgage loan and your home's fair market value.

The principal is the original lump sum amount, minus interest and other fees, which you borrowed from your lender.
An adjustable rate mortgage, or ARM loan will see the interest rate fluctuate throughout your loan's term. You will most likely pay less at a fixed rate initially with this type of mortgage. But when the set time has expired, your rates will change based on the market.

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An adjustable rate mortgage, or ARM loan will see the interest rate fluctuate throughout your loan's term. You will most likely pay less at a fixed rate initially with this type of mortgage. But when the set time has expired, your rates will change based on the market.

The APR, or annual percentage rate, is the amount of the interest rate quoted by your lender, plus additional home loan costs, which can include points and origination fees. It is often higher than the standard interest rate.

A fixed rate mortgage, or FRM loan is one where the interest rate does not fluctuate as long as scheduled payments are made. Common terms for an FRM are 10, 20 and 30 years.

Understanding the terms can help you to save a lot of money on your monthly mortgage payments. But not refinancing properly can result in you paying way too much every month and perhaps even losing your home. Searching for common mortgage refinancing terms and learning more about the process can help you ensure that you walk away with the most money possible and at terms that you can live with.