When is the best time to refinance your home? Should you wait for rates to be at all time lows, or the value of your home to be at an all time high? Ideally, you would like both. We just went through a period of exactly that with the most recent refi boom. Unfortunately, many consumers were put into programs (such as ARMs) that would require home value to keep increasing. Others were put into worse loans (see my article on the MTA Option ARM).

So what are the determining factors now, for making a refi a good idea? In this article we will explore some of the things to consider.

First of all, you must consider your current financial situation, needs, and goals. Are things tight each month? Would you feel less stress if you didn't have to pay 10 different credit card companies each month, and were able to save hundreds of dollars? Maybe you are making your payments fine with money left over, but you'd like to do some home improvement, get out of debt sooner, or get a lower or fixed interest rate. In any case, you need to "do the math." It really can be simple to determine if you're ready to refi, and with the help of an honest and ethical mortgage professional, you can weigh all the options.

Here's a simple example:
Let's say it will cost you $5,000 in closing costs to refinance your home. By combining some debt and maybe lowering your interest rate, you can save $175 per month. Divide what it will cost you to refinance by the monthly savings. 5000 / 175 = 28.5ish. We will round this number up and determine that you would have to be planning to stay in your home at least 29 months in order to recoup the refinance costs. Pretty easy right?

If you currently have an adjustable rate mortgage (ARM) and want to get into a fixed, the math can become a bit more difficult. What is your rate right now? Has it already adjusted? Where are industry rates right now? There are many factors that can go into this decision. You really should discuss your options with an honest and ethical mortgage professional.

Some of the other reasons for refinancing may be a bit harder to "run the numbers on." What about a scenario in which you want to take cash out for some home improvements or repairs? Maybe you want to use some cash for a down payment on another property. These types of reasons are usually justified by the individual more so than with numbers.

As you can see, some of the decisions for or against refinancing can be simple, and others can be a bit more involved. The first step that you should take is to discuss your situation and goals with an honest and ethical mortgage professional.

You have seen the statement, "honest and ethical mortgage professional" a few times throughout this article. It is important to deal with someone that will tell you if it is not in your best interest to move forward with a particular loan program. Unfortunately, there are many people in the mortgage business that will do any loan for their own benefit, and not care what happens to the borrower. Select your broker or lender carefully.