To help you determine whether refinancing is right for your particular situation, here we explore some of the most common reasons homeowners refinance, followed by steps to take to apply for refinancing.

To lower your mortgage payment
Yes, it’s true – a lower mortgage payment. There are two ways that refinancing can help you achieve this. First, you can refinance at a lower interest rate. In fact, a drop of just a half to three quarters of a percent can lower your payment. Alternatively, you can lower your payment by changing the term on your mortgage. For example, a switch from a 15- to a 30-year term can significantly lower your payment. Keep in mind, though, that if you like the idea of long term savings, refinancing from a 30-year to a 15-year can save you thousands of dollars over the life of your mortgage.

To change the type of mortgage
Specifically, this means converting an adjustable rate mortgage to a fixed-rate mortgage, or vice versa (depending on what rates are). If you have an adjustable rate mortgage (ARM), you may want to consider refinancing to a fixed rate or even another ARM when or before their interest rate is set to adjust, if current fixed rates are favorable. Furthermore, you might want to consider refinancing to an ARM if you're planning on being in the home for only a few years. Why? Well, there’s no sense paying the higher interest on a 30-year fixed mortgage when you can pay a lower rate for the few years you're living in the home. However, if you know you’ll be in the home for several years or more, then it makes more sense to convert to a fixed rate loan.

Conversely, if you already have a fixed-rate mortgage and are considering moving within the next couple of years, you may want to consider refinancing to an ARM to save money. Converting from a fixed-rate mortgage into an ARM can lower your monthly payment initially and is ideal if you're planning on selling within the next few years.

To access cash or pay off other debt
A cash-out refinance allows a homeowner to access the equity in their home. This frees up money that can then be used as they wish, such as to pay off credit cards and other higher-interest debt, pay college tuition, finance home improvements, or even buy a new car or go on vacation.

What is the advantage to this? Well, it’s because of interest. Interest on credit cards is compounded, whereas interest on a mortgage is simple. This means that using equity in your home rather than credit cards when you need to finance an expensive purchase will likely save you money paid in interest in the long run. A bonus: unlike credit card interest, interest paid on mortgages is most likely tax deductible, representing additional savings.

Applying for refinancing
Now that you’ve decided to refinance your mortgage, let’s go over what you can expect. First, you will need to complete an application. As can be expected, documents will vary depending on the lender you choose, not to mention the loan program and your own personal financial circumstances.

You’ll also need to collect a few documents to include with the application. To speed up the process and make it easier for everyone, make sure that you have these documents ready when you apply:

1. Proof of income: Bring originals of your pay stubs from the past several pay periods.
2. Proof of homeowner insurance: Bring a copy to verify that you have current and adequate property coverage.
3. W2 Forms: Bring copies for each applicant as this will help the lender verify past employment and income history.
4. Asset information: Bring information and/or copies about accounts holding money for closing, statements for savings, checking and 401K accounts and investment records for mutual funds or stocks.
5. Title insurance: A copy of your title insurance will allow the lender to verify the legal description of the property, taxes and names on the title.

You may not need all of the above documents – it depends on where you live and the type of loan program you have selected. Keep in mind, though, that as with any loan application, the more information you have ready when you apply, the faster you will get approved and the process underway.