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6 reasons why you should refinance:

1. You want to save money: Your monthly payments will be reduced if you get a low rate or when your loan term is extended. However, with an extended term, your monthly savings will increase but you'll be paying more in total interest for the life of the loan.

2. You want to pay down your mortgage quickly: You can shorten the length of your mortgage by reducing the loan term. Monthly payments will no doubt go up, but you will be able to save more in the overall interest payment. Moreover, you'll be debt free in a shorter time.

3. You need extra cash to pay off credit cards: If you have enough home equity, you can borrow more than the current loan balance. With the extra cash, you can pay off high interest debts such as credit card balances or installment loans. You gain out of it as the interest on such debt is not deductible unlike mortgage interest.

4. You wish to consolidate 2 loans into one: If there's enough equity, you can consolidate first and 2nd mortgages and refinance into a single first mortgage. The monthly payment on the new loan is likely to be lower than the combined payments on the first loan and the second mortgage.

5. You want to convert an ARM into FRM: This allows you to lock in at a low rate. You can thus repay the loan with stable monthly payments rather than variable payments over the loan term.

6. You want to get rid off PMI: If your current loan balance is below 80% of the new appraised home value, you can go for a home refinance and stop paying the PMI.

When to refinance:

Are you ready for a refinance? Find out:

1. Build up equity: It is feasible to go for a refinance when you have built up at least 10% equity in your home (For Fannie Mae owned mortgages, the value is 5%). It is also possible for you to choose the option if your equity is less than 5%, but you may have to pay a certain amount of cash in order to make up for the difference in equity.

2. Check if mortgage refinance rates are low: It's better to follow the 2% Rule which suggests that you can enjoy the benefits of a home refinance if your mortgage refinance rate is 2% lower than that on your current loan. The interest savings will help you recoup the costs you've paid for the new loan provided you stay in the property for a certain period of time (break-even period). However, there are no-cost as well as low-cost refinance loans wherein the costs are included into the loan. But you can expect comparatively higher rates on these loans.

3. Pay off any late payment: There is no limit on the number of times you can go for home refinance loans. Most lenders prefer that you have no late payment for the past 12 months before you switch over to a new loan.

4. Remove negatives and improve credit score: Pull your credit report from the bureaus and review it for any negative items (late pays, collections etc) and inaccurate detail. Try to dispute negative items and remove them from the report. If required pay off any unpaid debt. Otherwise, you won't get a low rate and may not even qualify.