There are several reasons that will help you determine if it is time to refinance. The main reason to refinance is, of course, to save you money. You may be able to get a better rate than you are currently paying and reduce your monthly payments. Even a small reduction in your interest rate can add up to significant savings in the long run.
Another reason to refinance your home is to reduce the term of your mortgage. In many cases you can switch from a 30 year mortgage to a 15 year mortgage with a lower rate. The overall monthly payments will increase, but you will completely own your house in half the time! Even if you are unable to refinance for a 15 year loan, your mortgage company may be able to create a custom loan for another specified number of years such as a 25 year loan.
A third reason to refinance your house would be to get cash back. Ideally this extra money would be put towards higher interest debts such as credit cards or other loans. When you refinance in this fashion, you will still have the same monthly payment.
Should you refinance? The decision to refinance is weighing the savings of a lower monthly payment to the costs associated with refinancing. Sometimes you may be able to refinance without incurring any charges, but typically this will result in a slightly higher rate (which may still be below the rate you are currently paying). You also need to factor in the time you expect to stay in your current home. If you do not plan on staying in your current house for a number of years, your costs to refinance may not be recoverable.
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