When Interest Rates Fall

• One of the most common reasons for refinancing is because interest rates have fallen since the time at which the original loan was taken out. Instead of continuing to pay interest at the prevailing market rates from years ago, the homeowner can take advantage of new, lower rates. Over time, a difference in interest rates of only a point or two can result in the homeowner saving tens of thousands of dollars in interest payments.
  
  

When Your Assets Increase

• Often a homeowner will choose to refinance when he finds that he is in a better financial position. For example, if the homeowner is receiving more income than he did when he first applied for a loan, lenders may be willing to extend him a lower interest rate on the loan. Similarly, if the value of the home has appreciated, the owner may attempt to capitalize on this increased equity by refinancing into a new loan.
  
  

When Your Credit History Improves

• The rate of interest an individual can receive on a mortgage depends greatly on his own credit history. In general, the better a person's personal credit, the lower the rate of interest he will qualify for, as lenders are willing to charge less to more creditworthy borrowers. Often, a mortgage holder will attempt to replace his loan after his own personal credit rating has improved, allowing him to qualify for a lower rate of interest.
  
  

When You Need Money

• Sometimes homeowners will seek to refinance as a way of freeing up badly needed cash. Many mortgages are offered in the form of a lump-sum payment upfront, often corresponding the amount of equity that the borrower has freed up in his home after making payments on his old mortgage. The borrower will then pay back this lump sum, plus the amount remaining on his old mortgage, through the normal series of monthly payments.