The decision to refinance your home is a big one. The equity built in a home is a great resource for funds in a tight squeeze, but will it help you, or hurt you? It is important to weigh all of the pros and cons and to make a decision based on what will be best for your situation overall, not just in the short term. Your home is the greatest investment you will make. Consider all options and possible outcomes before deciding to refinance.

Most homeowners refinance their home when a large amount of money is needed, say for college tuition. Remember, though, that by refinancing, you are starting all over on your mortgage. If you have a 25 year fixed mortgage and are already five years into it, then refinance to another, you are actually paying for your house for thirty years. Also consider that refinancing has its own fees just as the original loan did. There are closing costs such as loan origination fees. This means you may be lowering your monthly payments, but it could take years to recoup the fees to refinance. Most experts suggest not bothering unless the new rate is at least 2% less than what you pay now.

Another reason for refinancing is to change an adjustable rate mortgage to a fixed mortgage. This would be a great idea if the rate is reasonable and you are planning to stay in the home for many years. An adjustable rate means that after some time, the monthly mortgage amounts will increase. If the original loan is an ARM, a fixed rate would be more beneficial. The payments will not change. Remember to consider all factors before going forward with a refinance. Choose what is best for your particular situation.