Depending upon your specific mortgage and financial situation, there are a number of potential reasons why you should refinance. Refinancing can decrease your monthly payments, allow you to pay off the loan more quickly, and/or provide other financial benefits. Read on for more specifics about each of five different possible reasons why you should refinance your mortgage, along with details on the costs of refinancing.

1. Lower Rate: It may be possible to gain a lower interest rate if you refinance from a fixed to adjustable rate mortgage, or if your credit score has improved since the loan was originated. A lower rate might also be available if interest rates in general have reduced.

2. Balloon Payment: Some mortgages have a large “balloon payment” which becomes due at the end of the mortgage term. If this payment is too costly to afford, it may be possible to refinance it instead. In some cases, the original lender is required to offer refinancing if certain conditions have been met.

3. Length: Another possible reason why you should refinance is to obtain a different mortgage term. Changing to a shorter term (like 15 years) will make it possible to pay off the loan sooner, whereas a longer term (30, 40 years) reduces the monthly payment. A home owner might want to refinance in this manner if his/her income has significantly increased or decreased.

4. Fixed Rate: If your mortgage has an adjustable rate, it could be possible to refinance it to a fixed rate. This way, your monthly expenses should be more predictable, and there will be no need to worry about the mortgage payment increasing if rates go up.

5. Better Terms: If your mortgage requires Private Mortgage Insurance (PMI) or includes other undesirable terms, refinancing may allow you to obtain a loan without these negative aspects - especially if you have finished paying off a substantial amount of the principal.

Regardless of the reason why you should refinance, it is important that the closing costs for refinancing do not outweigh its benefits. For example, you should consider whether Private Mortgage Insurance will be more expensive than the closing costs, before refinancing so that it no longer has to be paid. Also, be aware that some lenders charge a significant prepayment penalty if a borrower refinances; this most commonly applies to subprime loans, but affects some other mortgages as well.