5 Good Reasons to Refinance Your Mortgage -- and 3 Bad Ones

These days, a lot of homeowners are rushing to refinance their mortgages. If you're thinking of doing the same, you should know that refinancing could result in a world of savings. But that's not always the case, so if you're going to refinance, make sure you're doing so for one of these good reasons -- and not one of the bad ones that follow.

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Mortgage rates have dropped significantly over the past few months, and that alone makes refinancing an enticing prospect. Now, to be fair, you won't get the same rate on a mortgage refinance as you will on a purchase mortgage for a new home -- but today's rates are still unquestionably competitive.

The higher your credit score, the better a mortgage rate you're likely to snag. If your score has improved a lot since you first signed a mortgage, refinancing could result in a much lower rate -- and a much lower monthly payment to go along with it.

Many people have lost their jobs or seen their income decline this year. If you're having a hard time keeping up with your mortgage payments, refinancing could be the thing that helps you stay in your home.

If you have a lot of unhealthy debt, like that of the credit card variety, a cash-out refinance could be a good way to consolidate it and make it more affordable to pay off. With a cash-out refinance, you borrow more than your remaining mortgage balance and take the difference in cash. You can then use that cash to pay off other loans or credit cards that are probably charging you a lot more interest than what you'll pay on a refinance today. For example, if you owe $120,000 on your mortgage but are eligible to borrow $140,000 with a cash-out refinance, you'll get a check for the remaining $20,000 that you can use for debt payoff purposes.

Just as there are closing costs to cover when you sign a new purchase mortgage, so too will closing costs apply when you refinance a home loan. But if you're planning to stay in your home for a long time, there's a good chance you'll reap enough savings to make up for those closing costs and come out ahead. Case in point: If your refinance costs you $4,000 but results in a monthly savings of $200, and you stay in your home for another seven years, you'll recoup your closing costs fairly early on and enjoy big savings afterward.

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As long as you pay them off each month, credit cards are a no-brainer for savvy Americans. They protect against fraud far better than debit cards, help raise your credit score, and can put hundreds (or thousands!) of dollars in rewards back in your pocket each year.

But with so many cards out there, you need to choose wisely. This top-rated card offers the ability to pay 0% interest on purchases until late 2021, has some of the most generous cash back rewards we’ve ever seen (up to 5%!), and somehow still sports a $0 annual fee.

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Many homeowners rush to refinance and wind up regretting it after the fact. Here are a few bad reasons to swap your existing mortgage for a new one.

Lowering your mortgage payments via a refinance will indeed free up money for you to put toward a down payment on a new home. But remember those closing costs we just talked about? If you're planning to move in the near term, you may not eke out enough savings to make refinancing worthwhile.

Doing a cash-out refinance for debt payoff purposes is a smart move, but taking out that money to buy clothing, electronics, or vacations is less prudent. When you do a cash-out refinance, you add to your existing housing debt. It's a good idea when that mortgage debt is simply replacing less healthy debt, but increasing your debt load on a whole is never wise.

Because of the closing costs involved, refinancing generally makes sense when you can lower your mortgage interest rate by around a full percentage point or more. But if you already have a low mortgage rate and can't knock it down all that much, then you may not come out ahead financially by refinancing. For example, if refinancing results in $50 worth of monthly savings, but it costs you $4,000 in closing costs, it will take you 80 months just to break even, and who knows if you'll still be in your home at that point? A lot can change over a lengthy period like that, so if you can't recoup your closing costs within a few years, you're probably better off not refinancing.

Refinancing a mortgage can be a good idea, but only under the right circumstances. Be sure to weigh the pros and cons of refinancing given your personal circumstances so you don't wind up regretting your decision or losing money because of it.

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As long as you pay them off each month, credit cards are a no-brainer for savvy Americans. They protect against fraud far better than debit cards, help raise your credit score, and can put hundreds (or thousands!) of dollars in rewards back in your pocket each year.

But with so many cards out there, you need to choose wisely. This top-rated card offers the ability to pay 0% interest on purchases until late 2021, has some of the most generous cash back rewards we’ve ever seen (up to 5%!), and somehow still sports a $0 annual fee.

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