Why refinance?

To obtain a lower rate:

If interest rates have dropped significantly since you took out a fixed-rate mortgage several years ago, refinancing at this point may considerably lower monthly payments. With this option, you can drastically reduce your monthly payment by shaving hundreds of dollars off the cost, simply by altering the interest rate.

To switch type of rate:

Adjustable Rate Mortgages may offer an initially lower interest rate, but many borrowers become frustrated with rate fluctuation. If rates are currently rising, it would be wise to switch to a Fixed Rate Mortgage, locking in the interest rate without having to worry about those fluctuations. However, borrowers who have Fixed Rate Mortgages, are looking for smaller monthly payments and can handle the interest rate fluctuations should consider refinancing into an Adjustable Rate Mortgage.

To improve adjustable rate mortgage features:

There are protective caps in place that effectively limit how much payments for Adjustable Rate Mortgages can actually increase in any given year, and also over the full term of the loan. These caps vary for each individual loan, however, so it may be beneficial to refinance into a different Adjustable Rate Mortgage with more preferable options.

To build home equity faster:

If it becomes possible to increase monthly payments for a period of time, a borrower might consider refinancing their mortgage with a shorter term. These higher payments will enable the borrower to pay off his or her home faster than originally able to, substantially saving on long-term interest charges. However, borrowers are not required to refinance simply because they are paying more than the pre-determined monthly payment, so they can choose not to refinance if they prefer.

To reduce monthly payments:

The amount a borrower has to pay each month will be drastically lowered if the borrower refinances for a longer term. The borrower will end up paying more over the life of the loan in interest, but this is a viable option for those who are looking for temporary relief from higher monthly payments.

To turn home equity into cash:

If a borrower is seriously in need of some cash for a major expense, but cannot find a viable option to secure the money from another source, it may be worthwhile to consider taking out a new mortgage with a larger principal in order to convert home equity into cash. Cash-Out Refinancing is an option worth considering, however, borrowers may end up paying significantly more if they are refinancing into a higher interest rate or a significantly longer loan term.