With interest rates approaching record lows, many mortgage loans are available at or below 5% today. As a result, many homeowners are struggling with the dilemma of of whether or not to refinance.

Approximately 80% of current loan applications are refinance requests. There are steep penalties for refinancing and the decision to refinance can be difficult. However, if you can get a low enough interest rate it will be well worth it. Refinancing your house is not something you want to do without proper due diligence.

Things To Consider Before Refinancing

The first consideration is the current interest rate. At this time interest rates haven’t dropped to 4.5%. They might just do that, so you may want to wait until they drop to that level. Understand, however, that higher loan amounts will come with a slightly higher rate structure, which means it might be beneficial to pay your loan down a few points.

Due to the sub-prime crisis, loan terms are more strict. Before applying for refinancing make sure you are prepared and have your credit rating in good shape. Check your credit through the major credit agencies; Equifax, Experian and TransUnion. You are allowed one free report each year from these agencies.

Another consideration is equity in your home, as many loans require 20% for refinancing. If yours is below that it might be necessary for you to come up with the additional monies required to get you to that level.

One major consideration is the cost; closing costs, points and appraisal fees. You need to figure out if you will be staying in your home long enough to recoup those costs. If not it probably isn’t worth refinancing.

When looking at loan rate quotes from lenders, check out the points you need to pay. A point will cost you 1% of the loan amount, and the lower rate you receive may or may not be worth that extra up-front cost.

Finally, try to save money at closing by enquiring if your current lender will consider changing the terms of your current mortgage without you having to submit a formal application.

Before making a final decision check rates with everyone, including small local banks and credit unions, have a realistic idea of the current value of your home, and meet with a lender or financial planner with your current mortgage in hand. To refinance or not to refinance is the question, but the answer is never a simple one. Make sure you do your homework before diving in headfirst.