The choice to refinance your existing home can be a very smart financial decision, and there are several reasons that will help you decide if it is time to refinance. For example, if you plan on keeping your home for a number of years, you may be able to reduce your monthly payments with a lower interest rate, shorten the term of your mortgage, or even get cash back.
The main reason to refinance is, of course, to save you money. If you get a better rate than you are currently paying, you can reduce your monthly payments. Even a small reduction in your interest rate can add up to significant savings in the long run.
Reducing the term of your mortgage might mean, for example, switching from a 30-year mortgage to a 15-year mortgage with a lower rate. The overall monthly payments will increase, but you will completely own your house in half the time! Even if you are unable to refinance for a 15-year loan, your mortgage company may be able to create a custom loan for another specified number of years such as a 25-year loan.
Ideally, refinancing in order to get cash back affords you the opportunity to put this extra money towards higher interest debts such as credit cards or other loans. When you refinance in this fashion, your monthly payments will remain the same.
Should you refinance? The decision to refinance involves weighing the savings of a lower monthly payment (or other benefit) against the costs associated with refinancing. Sometimes you may be able to refinance without incurring any charges, but typically this will result in a slightly higher rate (which may still be below the rate you are currently paying). You also need to factor in the time you expect to stay in your current home. If you do not plan on staying in your current house for a number of years, your costs to refinance may not be recoverable.
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