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Objective

Obtain a lower payment
Obtain a lower interest rate
Convert my adjustable rate
Obtain cash at closing
Other

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There are some times when refinancing makes good financial sense, but how do you know when it's time? Take a look at some opinions of the financial experts.

Equity

When you've built up at least one-third of the value of the home in equity, you may qualify for better interest rates and loan terms. That's one way to know that it's a good time to look into refinancing a mortgage. If your equity is at least have the value of the home, you're likely to qualify for even better rates and terms.

Consolidation

A home loan is preferable to some other kinds of loans and debts, including credit cards. If you've built up sufficient equity in your home and you've collected significant credit card or similar debt, you may need to consider refinancing your mortgage to consolidate all those bills. Typically, the interest rate on a home loan is more favorable than on credit card debt, and you can usually qualify for some tax breaks that are not available for credit card and similar debt. This shouldn't be an option unless you also make a commitment to get a grip on your credit card spending habits to avoid falling back into the same situation.

Financial Distress

Though taking out more loans to pay off debts isn't typically a good idea, but refinancing an existing mortgage may be a good idea in some cases. For example, if you're facing foreclosure, refinancing may lower monthly payments and make it easier to make ends meet. Again, this shouldn't be an option unless you're also taking long-term steps to fix the problem.

Interest Rates

Or more specifically, lower interest rates. If interest rates have dropped significantly, you may find that the savings on interest will quickly pay the closing costs of taking out a new loan. Before you start making commitments, be sure that you qualify for those lower rates that are being offered.

Better Terms

Many people take what they can get at the time of the initial mortgage with the idea that they'll be in a position to negotiate for better terms in the future. Follow through with that plan, especially if you aren't thrilled with your initial loan. You may have been given higher interest rates because of a poor credit history, but a couple of years of making house payments on time will solve that. You may be able to get better interest rates, to extend your mortgage to get more affordable payments, or to shorten the note to get a better payoff date. You may also be looking to completely change your mortgage. If you had a variable rate mortgage, you may be able to lock in an interest rate.