A mortgage is the biggest loan you'll take out, and repayment efforts can last decades. Because monthly installments are payments you'll be dealing with for years to come, it's important to set yourself up for mortgage success.

That means protecting your credit score, comparing lenders, paying attention to the market, and replacing your mortgage contract when the time is right. But how do you know when the time is right?

While the decision to refinance or not is entirely yours, there are some ways to tell if it's time to consider replacing your mortgage contract. Here are five signs that it may be time to refinance!

1. Low Interest Rates

What's a major driving force when it comes to deciding to refinance a mortgage? A decline in interest rates. That's fairly rare, as mortgage trends over time show slight increases from year to year, and sometimes even within the same month!

That's why it's important to keep an eye on the market. A drop in interest isn't likely to last long, and you want to ensure you lock in a new low rate before they start to climb.

While many believe that it isn't worth refinancing for anything less than a 2% drop in interest, even a 1% drop can save a significant amount of money over the life of your loan. Familiarize yourself with your current terms so that you can easily identify lower options. Then, act fast.

Low rates appeal to all borrowers, and lenders are likely to get a flood of refinancing applications, which pushes the overall refinance timeline back. If you regularly check interest rates and update mortgage offers, you can be ready to act when the time is right.

Interest rates are currently at all-time lows. As the U.S. starts to bounce back from the devastating coronavirus pandemic, interest rates are expected to rise, so if you're contemplating a refinance, now is the time to act!

2. Your ARM Is About to Adjust

What draws homeowners to adjustable-rate mortgages? Usually, it's the competitive fixed-period rates they have to offer, which give 15- and 30-year options a run for their money. That being said, homeowners may be in for a shock when that fixed period ends and their ARM enters the first adjustable period.

While there are limitations that dictate just how much your interest rate can increase from one adjustment period to the next, some homeowners are still shocked to see their new monthly installment amount. Since you've grown accustomed to a low rate, the higher one may be an unwelcome change. That's why it's important to explore refinancing options before you enter into that first or even second adjustment period.

There are many different mortgage options available, so be sure you express what you liked about your adjustable-rate mortgage with your current lender or a new provider. See what competitive rates they can offer you.

Pro tip: when armed with quotes from multiple lenders, you're better positioned to negotiate.

3. You've Built Up Your Credit Score

When it comes to figuring out the right time to refinance, many borrowers focus on rates and terms. That isn't a bad thing, but there is also another important factor to consider.

It may be time to refinance if you have improved your credit rating since you first applied. While the market plays a major factor in the rates you're offered, so does your financial health. If you've improved your health and have made your mortgage installments on time, you've shown yourself to be a trustworthy borrower. Your lender, or another provider who is eager for your business, may now be inclined to offer you more competitive rates.

You may also find that more providers are now willing to work with you, which means more options and more negotiating power. A healthy credit score goes a long way in the mortgage world!

4. There Has Been a Change in Your Finances

Perhaps the market hasn't changed since you secured your current mortgage contract, but your financial situation has. That can be reason enough to re-evaluate your contract and consider refinancing.

If you're now bringing in less money every month and need to cut back on expenses, you may want to consider refinancing to a longer mortgage term. By increasing the amount of time you have to pay back your loan, you lessen your monthly installments. Of course, you'll likely end up paying more in interest, so carefully consider this move.

Since there is no limit as to how many total times you can refinance, it may be worth it to secure a new contract and look into refinancing again once your financial situation improves.

There's also the possibility that your financial situation improves, and you want to own your house sooner. If you can handle an increase in monthly installments, you can save money on interest. That could be a substantial amount and is something to consider if you can afford it!

5. You're Happy in the House

Refinancing your mortgage only makes sense if you'll be in the house long enough to recoup the costs that are associated with replacing your mortgage contract. Therefore, if you know you're going to move in a year, refinancing may not be the most money-savvy move to make.

That's not to say that you need to be sure the home you're in now is your forever home but, rather, that you'll be there to not only recoup refinancing costs but save money with the new terms. It's not enough to break even; you want to be able to save. Otherwise, what was the point of refinancing in the first place?

This is why it's vital to understand the new terms of your contract, the payment schedule, exact closing costs, and how those closing costs affect your bottom line. If you don't, you could end up losing money.

Here's What Refinancing Comes Down To

There are so many situations in which refinancing a mortgage is a smart money-saving move. The best way to decide if a refinance is right for you is to team up with a reputable lender. They can review your unique financial situation, consider your goals, ensure you're aware of all associated costs, and help you better understand your bottom line.

Even if you love your current lender, knowing what others have to offer is a great negotiating move to make. With help from Lendgo, a free platform that helps borrowers connect with lenders, it's easy to explore your refi offers in one afternoon. See what terms await you so you can decide if you're ready to replace your mortgage agreement!