A mortgage refinance is a smart way to manage your investments if you use it in the right circumstances. Here are some things to consider about refinancing your mortgage.

When you refinance, you take out a new mortgage to pay off your old mortgage. The first question you should ask yourself is whether there is a better option than the one you started with.

Refinancing lets you borrow against the equity in your home to get cash that you can use for other debts, home improvements or retirement investments. Let’s say, for example, that you have $70,000 in equity, but still owe the $175,000 mortgage. You can take out a $200,000 mortgage to pay off your first mortgage. Then, you will receive $25,000 cash. You may have enough equity if you have been paying your mortgage regularly for at least five consecutive years.

Refinancing can also be done to reduce monthly payments, giving you more flexibility with your budget. You are basically starting all over again on your 30-year mortgage commitment when you refinance. However, if you do not take cash out, the new mortgage amount is lower and your payments will decrease.

If you took out a mortgage for 15 years, switching to a 30 year term will reduce your monthly payment.

You can also do the opposite, and switch from a 30 year loan to a term of 15 years. You will probably have to pay more in monthly payments, but your loan will be paid off sooner and you will pay less interest.

Refinancing is also done to switch from an adjustable rate mortgage (ARM) into a fixed rate. This will eliminate fluctuations in your mortgage payment and allow you to take advantage of lower rates.

Do your homework before you decide to refinance. You should do an audit of your budget, evaluate your short- and long-term goals, check your score, monitor interest rate fluctuations and consider the costs associated with refinancing.