Should I Refinance My Home: 6 Signs You Should Look Into Refinancing

Getting a mortgage is a major financial achievement. Once you have one, you might be tempted to just sit back and enjoy your new home.

But in fact, that's not always a smart move. Experienced homeowners know their mortgage should be reviewed and perhaps refinanced from time to time. They also know the signs you should refinance your mortgage now.

With that in mind, here are six signs you should refinance your mortgage:

1. You Want a Lower Rate and Payment

Though mortgage rates have been low for more than a decade, many homeowners still have a mortgage rate that's higher than they can get today. Refinancing can dramatically lower your monthly payment and interest expense. A fixed rate can be especially attractive if you are nearing retirement and need to plan a budget with a fixed income.

2. You Want to Lock in a Fixed Rate

A home loan with an adjustable or variable rate can save you money as long as rates stay low. If you're concerned that rates – and your payment – might rise, you might want to refinance to lock in a fixed rate. A fixed rate might be a bit higher than an adjustable rate, but you'll have less risk and less worry.

3. You Want to Cash Out Equity

If your home is worth substantially more than your current mortgage balance, you might be able to refinance and take out cash to make home improvements, pay off other debts, finance a start-up business, buy an investment property or satisfy other needs or wants. Rather than get a home equity loan or home equity line of credit (HELOC), refinancing can enable you to cash out and restructure your first loan at the same time, leaving you with one loan instead of two.

4. You Want to Consolidate Two Home Loans Into One

If you already have a first mortgage and a home equity loan or HELOC, you can refinance to consolidate those loans into one loan with one monthly payment. If your second loan has a variable rate, refinancing could enable you to convert that to a fixed rate and a payment that won't change even if market rates go up.

5. You Want to Stop Payment for Mortgage Insurance

Mortgage insurance encourages lenders to offer affordable home loans with small down payments. If you have a loan that requires mortgage insurance and you now have more equity than you did when you obtained the loan, refinancing might enable you to stop paying for mortgage insurance. And if you can't get rid of your mortgage insurance altogether, refinancing could help you to lower how much you pay for it.

6. You're Getting Divorced

A divorce decree might say that either you or your ex-spouse is solely responsible for your mortgage payment. But your lender isn't obligated to honor that decree and probably won't remove you or your ex from your loan. The only way to remove a borrower is for the other person to refinance the loan in his or her name only.

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