The most common reason is to save money. If you can get a loan with a lower interest rate, your monthly mortgage payment and the total amount of interest you pay will be less.
Reducing the number of years of your loan will help you to save money. For example, you may decide to change from a 30-year to a 15-year mortgage. Depending on the interest rate, your monthly payment may stay the same, or even increase. However, the total amount of interest you pay will be less.
Taking out a new mortgage and paying off your old one may be advisable if mortgage rates are lower than when you took out your mortgage. It pays to refinance if you can get an interest rate at least two percentage points lower than what you are currently paying.
How long you plan to stay in the house is another factor to consider. If you don’t plan to stay in the house very long, you may not enjoy the benefits of the lower rate long enough to make the costs of refinancing worthwhile.
Refinancing involves some costs as legal fees, points on the new mortgage, and others so refinancing doesn’t pay if rates have fallen only slightly.
You may want to refinance to get money for other family expenses. For instance, you can use the equity or cash value in your home for a major expense such as a child’s education or a remodeling project.
You may want to refinance to consolidate debts or pay off high interest loans. Instead of these loan payments, you would have a larger mortgage but at a lower interest rate and the interest paid would be tax-deductible.
Be cautious about continuing to use your credit cards if you refinance because of potential debt problems.