Refinancing can help you pay off your mortgage sooner, the idea being that a lower payment frees up money that can be applied to additional principal payments.
The challenge is being able to qualify for a new loan, says Justin Lopatin, vice president of residential banking at Baytree National Bank & Trust in Chicago.
The biggest hurdle, Lopatin says, is the effect of declining home values. A lower valuation can throw off your loan-to-value ratio, result in an appraisal that's too low to support your loan amount or trigger a need for mortgage insurance, making your new payment more costly and refinancing less attractive.
You'll also need an up-to-par credit score and two years' worth of documented stable income, Lopatin says.
To maximize the benefit of refinancing, shorten the term of your loan. For example, if you've paid off 10 years of a 30-year term, refinance with a 15-year mortgage instead of a new 30-year loan.