Refinancing your loan can have a significant impact:

1. If you need money. Whether it's to pay off debts or to use it to remodel your house.

2. If you're just looking to lower your monthly payment.

As an example, let's consider Carlos, who bought his house 5 years ago for $180,000.00 with a 5% down payment and a 5.75% interest rate. To simplify the explanation, we'll leave out taxes and insurance for now. Carlos is currently paying $998 in principal and interest, and after 5 years, he only owes $159,795. His house is now worth $245,000.00.

You might be wondering what would happen with refinancing and how Carlos could get money to pay off his debts. Applying for a loan at an approximate rate of 4% today and taking an 80% equity withdrawal (the value of his home), Carlos would be left with a new debt of $936 per month in principal and interest, plus $35,000 in available cash. Alternatively, if Carlos doesn't need the money for personal expenses, he could refinance his $159,795 debt with a monthly payment of $998, resulting in a new monthly principal and interest payment of $762.