To refinance or not to refinance? That is the question.

There has been a lot of talk in the news recently about the low mortgage rates and it's true! They are really low! So, if you have been on the fence about buying, low rates are a good reason to get off the fence---but if you already own a home, now may be a good time to think about refinancing.

It's time to think about refinancing your home loan IF:
• rates are 2% + lower than your current rate

• you are paying mortgage insurance and you have 80% equity in your home,

• you’re current loan is an ARM and your term is up and your rate is looking at resetting

And most importantly ---only refinance if you are planning on sticking around in your home for at least 2 years post refi.

Here are some more things to consider when thinking about refinancing:

Four Reasons to Refinance Your Home

There are many situations where refinancing a mortgage is a good decision. It can save your house, save you money, or help you with other financial needs. Read on to learn the four reasons to refinance your home.

1. Avoid Foreclosure with a Refi

If you are on the brink of foreclosure and are desperate to save your home, refinancing may be the answer for you. Whenever you are having trouble paying your mortgage, it is always a good idea to approach your lender and discuss the issue with them. They may be open to helping you through a refi. This can help you lower your current interest rate, lock in a fixed rate, and/or change the length of the loan. This can lower your monthly payments and make your mortgage more affordable, helping you avoid foreclosure. You can also talk with other lenders or mortgage brokers to see if they have programs available for you. The biggest obstacle in this situation is going to be whether you have enough equity in your home. If you do not, you need to talk to your lender and review your options.

2. Changing an ARM to a Fixed Rate Mortgage

Maybe you are not on the brink of foreclosure, but you do have an adjustable rate mortgage (ARM) whose rate is going to increase in the near future, making it harder for you to afford your mortgage. Many people are solving that problem by refinancing their homes to get a fixed rate, so they no longer have to worry about when and how much the rate on their mortgage will increase. This can help you avoid financial trouble before it starts.

3. Saving Money When You Refinance Your Home

Not everyone who refinances a home does it because they are experiencing some sort of financial trouble. Usually, refinancing is an effective way to save money on your monthly payments. For the same reasons that it can help people avoid foreclosure, it can help you save money by lowering the interest rate, lengthening the term of the mortgage, locking in a fixed rate, or paying off other higher-interest rate debt.

4. Getting Money Out of Your Home

Another reason to refinance is to get money out of your house, which is known as a cash-out refinance. This type of refnance allows you to access the equity in your house to use that money for other purposes. Many people do this to pay off other high-interest debts they may have. It is also a very popular choice for finally doing those improvements around the house. Of course, any time you take equity out of your house, you want to make sure you assess any possible risk involved and confirm that you are not putting your house in jeopardy.

Two Reasons Not to Refinance a Home

A refinance is not an easy fix to complicated problems, nor is it an ATM for making unneeded purchases. As with anything relating to mortgages or your house, you need to be smart about a refi and know when it is not the right decision.

1. When a Refinance Does Not Save You Money

Lower rates do not necessarily mean that a refinance will save you money. You need to thoroughly assess the situation and evaluate how much you will save, if anything. It is important to remember that with any mortgage, including the one you are about to refinance, there are always fees involved, such as closing costs. These can add up to several thousand dollars, which can prevent the refinanced loan from saving you money. You also need to consider how long you plan to stay in that specific house. If you plan to move in the near term, a refi may not save you money. Talk to a mortgage professional or trusted financial planner if you are not sure where you stand.

2. Cashing Out for Frivolous Purchases

We all would love to go on a two-week Caribbean vacation or buy the luxury or sports car we have always dreamed of driving, but using a cash-out refi for such purchases is not a very smart choice. Once you get into the habit of using your mortgage as a way to pay for things you can not really afford, you run into the danger of going into debt you cannot handle or losing your home. Using equity for home improvement projects can increase the value of your house. Using equity for luxury purchases saps the value from your home.