In terms of interest rate fluctuations in the market-at-large, are two great times to refinance a mortgage: 1. when interest rates have been on the decline for weeks or months and are lower than they have been in a long while, and when you currently have an adjustable rate mortgage (ARM) and interest rates are looking like they are about to head north.

Refinancing a mortgage, of course, is simply the act of "exchanging" one's existing mortgage for one that has a better interest rate, a different length loan term, or both. Refinancing, when planned properly, can be a great way to save money down the road on your mortgage payments.

It's All About The Low Interest (Almost)

The main reason that most homeowners choose to refinance a mortgage loan is to lock in a better interest rate. For example, people who currently hold an adjustable rate mortgage (ARM) may now be in a period where their interest rate is variable. If interest rates are on the rise, they may decide it is cheaper to refinance than to continue paying increasingly higher monthly payments.

On the other hand, some homeowners choose to refinance when they have a fixed mortgage - or are in the first few years of an ARM when the rate is still fixed - and they notice that interest rates have gone down significantly. By refinancing, they would be able to lock in the lower rate now available in the marketplace.

And, there are those people who have enjoyed an improvement in their credit score over the past few years. They know that this score will allow them to qualify for a lower interest rate, even through their current lender.

Of course, it is not just the prospect of better interest rates that can move someone to apply for a mortgage refinance loan; the promise of a cash infusion can also tip the balance in favor of refinancing. That is, if the homeowner faces upcoming large expenses such as a child's college education, paying down high-interest credit card debt, or the need to pay off medical bills (for example), the refinancing can be a viable avenue for gaining access to some of the equity that exists in the home.

When NOT To Refinance

Any refinance involves the payment of fees, of course. There are a number of parties who will be involved with your refinance, including lenders, lawyers, title companies and others. Each one will want their little piece of the pie. Some of the fees, such as the points you pay to lenders in the form of a commission or in exchange for a lower interest rate, are based directly on the loan amount. Others are a flat fee.

One rule of thumb for refinancing: it is probably not a good idea to refinance if you stand to save less than 0.5% in terms of getting a lower interest rate. Also, you should likely avoid refinancing if you do not plan on staying in the home for more than 5 more years, or if your current mortgage has less than 10 years to go before it is paid off. In these cases, refinancing your loan may actually cost you more money that it saves you.

What To Have Ready For The Application Process

If you decide to move forward with a refinance, you will likely be asked for some or all of the following information. It can be helpful to get the information ready now so as not to delay the process:

• your personal information such as name, address, and social security number
• income information
• asset information
• any money you own in the form of debts or other ongoing financial obligations
• credit references
• information about your existing property

Even if you do not have all of this information at hand at the moment, you are encouraged to start contacting mortgage companies to get the process started. They will let you know when in the process is the right time to share this information with them.