With mortgage interest rates at their lowest point in years, the time may be right for you to refinance your existing mortgage. What is involved in the process? Will your monthly mortgage payment be lower? Will it be worth the cost of refinancing? With possible rate increases on the horizon, the time to consider refinancing is now.

A WINNING STRATEGY

The Refinance Process: Is It Right for Me?
To determine whether a refinance might be right for you, you should begin to think about the following questions:

What are your reasons for refinancing?
How long you plan to stay in your home?
How much equity you have built up in your home?
What is the interest rate of the existing mortgage?
What is the interest rate of the new mortgage?
What costs are associated with refinancing?
What is your current income and credit status?

To be eligible to refinance, a lender usually requires that you have at least 10 percent equity accumulated in your property.

Why Refinance?
A refinance of your current loan may make sense for several reasons:

• You may want to get a mortgage with a lower interest rate to reduce your monthly payment.
• You may want to borrow additional funds for home improvements, education bills, or other needs. This is often referred to as a "cash-out" refinance.
• You may want to switch from one type of loan product to another: for example, from an adjustable-rate loan (ARM) to a fixed-rate loan. This may make sense if interest rates have fallen since you took out your ARM and you now want the assurance that your mortgage payment will remain the same for the life of your loan.

One common type of refinance is when you have an adjustable-rate mortgage and you refinance to a fixed-rate mortgage. Your mortgage payments with an ARM adjust with changes in market rates; so when interest rates go up, your monthly payments likely go up at the next rate adjustment period. But with a fixed-rate mortgage, your interest rate stays the same for the entire term of your loan. The predictability that comes with locking in the same interest rate for as long as you live in your home is one reason why changing from an adjustable-rate mortgage to a fixed-rate loan is one of the more popular refinancing choices -- especially when interest rates are falling.

Here is another scenario. You might want to change from one type of ARM to another ARM to get a better combination of rate and term: for example, from a one-year ARM to a 5/1 ARM (in which the new rate remains fixed for the first five years and then adjusts annually). You should compare the financial index, margin, and any rate caps in your existing ARM with current market rates before you decide to refinance to another type of ARM. It is important to understand how often your mortgage will adjust and how much your payment can change with each adjustment and over the life of the loan. Also, be sure to ask whether any conversion terms apply or if there are costs to convert to another type of mortgage.

Another reason to refinance is to use the equity in your home, perhaps for a major purchase, a child's education, or even debt consolidation. You have been building equity in your home since you first started making monthly mortgage payments. A portion of your payments is used to pay principal -- helping you build equity -- and the rest is used to pay interest, taxes, and insurance. With this type of refinance -- often referred to as a "cash-out" refinance -- your new loan lets you draw on the equity in your home and provides an easy way to get cash you may need for other purposes.