Improved Credit

• Many people purchase homes with mediocre credit scores; however, after establishing their new home, performing strong budgeting, and making timely payments, the mediocre score increases to a superior status. If your credit has changed for the better, refinancing may be a good option. Generally, if you have a better credit score, you have an opportunity to accept a lower, more competitive interest rate.
  
  

Lower Interest Rates

• Lower interest rates result in lower monthly payments. Even if you had great credit when you bought your home, you may find that the current interest rate is much lower than the interest rate used to purchase your home. If you see mortgage lenders reducing their interest rates lower than your current one, consider refinancing. Many times, lower interest rates reduce your monthly mortgage payment. This also gives you an opportunity to build equity in your home more quickly.
  
  

Term Adjustments

• Refinancing can be ideal if you are seeking to modify your mortgage's length. Many homeowners purchase their homes with 30- or 15-year mortgages only to find their mortgage terms no longer meet their situations. Refinancing allows you to change your terms from, for instance, a 15-year loan to a 30-year loan. If you change your terms from a smaller term to a longer term, your monthly payments will, generally, be reduced. However, you will build equity in your home much slower than with a shorter term. In turn, if you change your mortgage from a 30-year plan to a 15-year mortgage, your payments may increase, depending on the balance of your loan, but you will build equity in your home faster.
  
  

Adjustable to Fixed

• If you have purchased your home with an adjustable-rate mortgage, your payments fluctuate based on the current mortgage interest rate. If you are expecting a substantial increase in your next rate adjustment or are no longer comfortable with the selected mortgage, you can choose to refinance to a fixed-rate mortgage. The fixed-rate mortgage will guarantee a fixed monthly payment that allows you to better-prepare your monthly budget. You can also choose to refinance from your current adjustable-rate mortgage to another adjustable-rate mortgage with better terms and adjustments schedules.
  
  

Beware

• Refinancing can be beneficial for many reasons. Still, it is important that you recognize when not to refinance. If you have owned your home for many years, you have more than likely built a good percentage of equity. Equity is the difference between the value of your home and the amount financed. The more equity you own in your home, the closer you are to paying off your home. When you refinance your home, you lose your equity and start your financing process again. Think carefully before you decide to refinance.