NEW YORK, January 31, 2023 (Newswire.com) - Sponsored Content: Getting a refinance is similar to getting a purchase mortgage — it takes some work and often involves closing costs. Therefore, the homeowner should have a clear purpose to refinance. 

Here are 5 reasons why homeowners might refinance their homes. 

1. Save on Payments and Interest 

Rate-and-term refinancing involves getting a new loan the same size as the existing loan, but with a lower interest rate and paying the old loan off. 

As a result, the borrower reduces their monthly payments and saves money on interest. 

The refinance calculator from Discover® can help homeowners determine their savings from a rate-and-term refinance. 

2. Tap Equity for Cash 

A cash-out refinance lets borrowers convert their equity into cash. To do so, they take out a new mortgage larger than their existing one to pay off the existing one and pocket the remainder. 

For instance, a borrower might have $100,000 left on an original mortgage balance for a home valued at $200,000. They could get a $125,000 cash-out refinancing loan to pay off the old loan and tap into their available equity to pocket an extra $25,000. 

3. Reduce or Ditch Private Mortgage Insurance 

Lenders make borrowers pay private mortgage insurance (PMI) if they put down less than 20% when buying the home. But once they reach 20% equity, they could still be stuck with PMI. Refinancing to a new loan may free the borrower from PMI.  

4. Switching Loan Types 

Some homeowners start with adjustable-rate mortgages, or ARMs. These loans have a fixed interest rate for an introductory period of several years — however, when that period ends, the rate changes. 

If rates are rising, a borrower may refinance to a fixed-rate loan to lock in a lower rate before it's too late. 

5. Changing Loan Terms 

Borrowers can refinance to change their loan term length, depending on their financial goals. 

If they want to pay off the mortgage as soon as possible, they may refinance to a shorter-term loan, giving them a higher monthly payment but a lower interest rate.  

Or a homeowner may want to stretch their loan out over a longer term to get a lower monthly payment even if the rate is higher and they may pay more interest over the life of the loan.