Why, and when, should you refinance your home? When it comes to refinances, timing is everything. With interest rates and your financial circumstances changing, you're not sure when to make a move. Take a look at the top reasons to start the process and the best time to refinance your home.

Are Interest Rates Favorable?

A low interest rate is one of the primary reasons homeowners consider refinancing. When interest rates drop significantly below your current mortgage rate, refinancing gives you a way to save money on your monthly mortgage. But that's not all. Along with a reduction in your monthly payments, you also have the potential to save thousands of dollars over the life of your loan.

How do you know if the interest rate has dropped below what you currently pay? You could monitor the market and compare them to your existing mortgage rate.

If you're not sure how significant change is needed to save you money or if the current interest rate might drop even lower in the not-so-distant future, talk to a home loan or real estate professional. Even though a pro can't predict a specific future interest rate, they can help you to better understand the market and your options.

Did Your Credit Score Improve?

You see an advertisement for a low, low interest rate. Even though the refinancing option is appealing, it's possible you won't qualify for the percentage number. Your credit score plays a crucial role in the interest rate you get when refinancing your home loan. A higher credit score often equals improved creditworthiness. If your credit score has improved since you initially mortgaged your home, it's possible you could qualify for a lower rate.

Before refinancing, check your credit report for errors and take steps to boost your score if needed. This can include paying down debt and making consistent, on-time payments. Even though paying off debt should raise your score, it can sometimes have the opposite effect. According to the credit reporting agency Equifax, removing some debts can negatively impact your credit utilization ratio (the amount of credit you use compared to the total open credit limit you have available), credit mix, or overall history.

Do You Have A Significant Change In Your Financial Situation?

An increase in income or a reduction in debt can affect your ability to refinance successfully. If you have a more stable financial standing than when you first mortgaged your home, you may qualify for better terms and rates.

Do You Want To Shorten or Lengthen Your Loan Term?

A home refinance does more than just change the interest rate. It can also allow you to adjust the term of your loan. If your financial situation has improved and you want to pay off your mortgage faster, you can refinance into a shorter-term loan, such as a 15-year mortgage. But if you're looking to lower your monthly payments, refinancing to a longer-term loan, like a 30-year mortgage, can help.

Contact a professional near you to learn more about home refinances.