I've had more calls lately with questions on refinancing and if it would make sense. My answer usually starts with the question – how long are you going to be in your home?! Everyone is different and the answer is different for everyone. A refinance always costs money – it may be a no cost refi where you go with a higher interest rate to cover the closing costs or you may roll the costs into the new mortgage. If you are able to refinance and get a lower rate than you have and keep your mortgage the same, that's the best option but it doesn't always work that way.
For some people the goal is to drop their payment and others want to drop the number of years they still owe on the mortgage. Both are good ideas. Some people may be able to do both. First of all, decide how long you are going to be in the home. Then decide what you are comfortable with for a payment – can you lower the term to a 15 yr and be comfortable making that payment? That can save you the most money. With interest rates as low as they are, that may be a great way to go.
If your mortgage is low, you may be better off just paying extra every month. It depends on the amount of the mortgage- figure out the costs by talking to a loan officer and then figure out what it will save you. How long will it take you to pay back the cost? If the closing costs are $3000 and you are going to save $150/month on your payment, it will take you about 20 months to recoup that cost ($150/20). As long as you are in the home for at least 2 years, it would make sense to refi.
Some people want to take cash out to pay for other things – that may also make sense. It depends on your equity – ideally you need to be under 75% loan to value to take cash out. You also want to make sure it makes sense to use your equity in your home to pay for those items. If you are planning to take equity out to do home improvements, that can make sense. If you are going to use the equity to pay for a vehicle, that may not be the best plan.
Everyone is different and their goals are different – you need to decide what makes the most sense for you. Decide how long you think you will be in your home and then you can make a better decision on whether it makes sense to refinance your home!