A few years back, low interest rates created a mortgage refinance boom. With homeowners welcoming significantly reduced rates, the decision to refinance was a no-brainer. Now, with rates rising, refinancing is slowing down. No matter-there may still be some solid reasons why a refinance makes sense.

David Letterman made the Top 10 list famous with classics like "Top 10 Messages Left on Fidel Castro's Answering Machine," and "Top 10 Things That Almost Rhyme With Peas." It's a good thing Dave never tackled a Top 10 list about mortgage refinancing-it would probably be big on laughs and low on practicality.

But refinancing isn't a laughing matter. If done properly, it can make a significant difference in your life by stabilizing your financial situation. Here's a list of the top four reasons to refinance your mortgage.

1. Change the mortgage term

Two variables usually determine what loan length is right for you: how long you intend to own your home, and what size payment you can afford. Buyers with healthy cash flow may opt for a 15-year mortgage to pay less in total interest. But buyers who intend to sell quickly might select a longer term to avoid tying up too much cash. Even if you carefully plan your mortgage, situations change without notice. If your mortgage no longer matches up with your plans and cash flow, consider restructuring it with a refinance.

2. Opt out of adjustable rate

The introductory rate clock starts ticking as soon as you fund your home purchase with an adjustable-rate mortgage (ARM). While it may have been the right choice then, it may have outlived its practicality once interest rates started to rise. A refinance can provide the opportunity for you to trade in your ARM for a more secure fixed-rate mortgage.

3. Spend less on mortgage payment

Lowering your monthly mortgage payment is the traditional reason for refinancing. Industry wisdom advises that if the prevailing rate is two percentage points lower than your mortgage, it's time to consider refinancing. Competition in the field of mortgage lending is beginning to turn this industry wisdom into a much looser rule of thumb. Homeowners with good credit can get deals on closing costs from some lenders. In such a case, refinancing for a smaller interest break might make sense.

4. Spend less on other debt

The best reason to refinance your home is to spend less on other debt. Unsecured credit card debt that's rolled over month after month can suffocate your monthly cash flow. If you have equity in your home, a refinance can help you convert expensive credit card debt to less expensive mortgage debt. Doing so would streamline your monthly bill payments and lower your interest costs.

Study the above list to see if you'd benefit by refinancing. With more money in your pocket and less financial stress, you can kick back and really enjoy Letterman's Top 10 lists without any financial woes.

Published on May 18, 2007