Many borrowers refinance when interest rates drop significantly compared to what they were when they took out their original home loan. There is no reason to go on paying a higher rate when your neighbors are paying less on interest every month.

If your risk profile has become more favorable than it was when you took out your original mortgage, it makes sense to refinance. A higher credit score and lower DTI ratio should mean that you qualify for better rates and terms today than you did originally.

Refinancing is also wise when plans change. Maybe you originally thought you would only be staying in your house for several years, so you chose a loan with an adjustable mortgage rate. If you will be staying for a long time, you can refinance to a fixed rate for greater financial stability.

The reverse would also call for a potential refinance. If you chose a fixed rate, assuming you would be in the home for long time, and now you know you will be moving out in a few years, switching to an ARM with a low initial rate could save you money.

If your income has increased and you can now afford to make larger monthly payments, refinancing can allow you to pay off your mortgage early without prepayment penalty.

If your income has decreased, refinancing to a longer term will allow you to make smaller monthly payments going forward.

If you have been paying for PMI on a loan which requires it, refinancing to another type of loan may allow you to stop paying for PMI. This can save considerable money over time.

Need some extra cash? It could be time for a cash-out refinance. With this type of loan, you can receive a lump sum of cash which you can use for home repairs and upgrades and other expenses.